Ahead of the arrival of the Unified Patent Court (UPC), the detail is becoming clearer on how the new system and Court will work and what we can expect. As well as considering the new court's structure and role, our IP experts outline here the opt-out option for owners of European Patents (EPs), Supplementary Protection Certificates (SPCs) and patent applications, how this will work, the implications and how to opt back in at a later date.
In this article we cover:
What is 'Opting Out' and why does it matter?
- Opting out is a procedure that has been made available to owners of EP patents, SPCs and patent applications under Article 83(3) of the Agreement on a Unified Patent Court (UPC). In referring to "EP patent" here, we mean all the country designations within the patent bundle that are for countries that are signatories to the Agreement (currently all EU member states except Spain, Poland and Croatia).
- The procedure is available during the first seven years of the UPC's operation (the "transitional period") and this period may yet be extended by a further seven years.
- The effect of an opt-out is that the UPC will have no jurisdiction over the patent concerned. The relevant national courts will continue to have sole jurisdiction, as at present.
- If a patent is not opted out then, during the transition period, it may still be litigated in national courts, and it may also be litigated in the UPC. A decision of a national court will take effect only with regard to the country designation for which that court has jurisdiction, but a decision of the UPC will take effect across all the country designations (for signatory countries) in the patent bundle.
- An opt-out is effective for the life of the patent. Provided no national litigation has been commenced using any of the country designations in the period following the commencement of the UPC, the opted-out patent may be opted back in to the UPC system at any time (but it may not be opted out again thereafter).
- When the transition period ends, it will no longer be possible to commence proceedings in national courts on patents that have not been opted out. The only proceedings allowed will be in the UPC.
- Proceedings in the UPC offer the advantage that any remedy (for instance an injunction and/or damages) will be automatically effective across all the country designations in the bundle. Similarly, they have the disadvantage that any finding of non-infringement or invalidity will also be effective across all the country designations. Patents that have not been opted out may therefore offer a more cost-effective target for an attack on validity in the UPC than the individual country designations.
- It remains to be seen whether there will be other advantages and disadvantages of litigating a patent in the UPC, as much will depend on how the court implements its rules of procedure, and on judicial attitudes towards procedural matters and remedies.
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When is the process of opting out available?
It will be possible to-opt out a patent at any time up to one month before the end of the transition period.
In addition, there will be a "sunrise" period during which the UPC will not be operational (and so proceedings may not be commenced) but wherein it will be possible to opt out patents. This is intended to give patent owners the opportunity to opt out patents that might otherwise be subjected to attack as soon as the UPC commences.
The sunrise period will last for three months and will begin once Germany has deposited its ratification (which has already been approved by the German legislature). The court will become operational immediately following the sunrise period. Germany will not deposit its ratification until all the preparations for the court have been made (including for instance the IT system, premises, and the appointment of judges). Preparations are expected to be completed at any time from autumn 2022 onwards.
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Who can opt out a patent?
A patent can only be opted out by all of the proprietors of all the country designations acting together. It is not possible to opt out only some of the relevant country designations and not others. The patent bundle comprising all the designations for signatory countries to the Agreement must be dealt with as a whole.
For instance, if one of the designations has been assigned to another owner then that owner's participation is needed in order to opt out the patent as a whole.
The UPC registry cannot know who owns a patent. It would therefore be possible to misrepresent the position when applying for an opt-out, but in that event the opt-out would not be effective (and there could be liability for misrepresentation).
Because of this there is also a procedure available to correct the register if an opt-out (or an opt-out withdrawal) has been registered by someone who was not entitled to do so.
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What are the pros and cons of opting out?
When considering the pros and cons of opting a patent out, it is important to remember that during the transition period the owner may choose whether to commence proceedings in the UPC or in a national court (or courts), as may any third party.
The immediate benefit of opting out a patent is that it will no longer be subject to the jurisdiction of the UPC. This maintains (or restores) the status quo prior to the UPC; in particular, it means that a third party cannot bring a revocation action or seek a declaration of non-infringement in respect of that patent in the UPC, but only in the national courts of the designations in the patent bundle. If the opt-out is registered during the sunrise period, the risk of a third party attack in the UPC can be completely avoided.
When the transition period expires (in seven years) it will no longer be possible to opt out a patent and the competence of national courts in respect of non-opted out patents will cease. A further benefit of opting out is therefore that it ensures the competence of national courts for the entire life of the patent.
However, in the meantime it will be possible for an opted-out patent to be opted back in to the UPC provided no national proceedings have been commenced. Thereafter it cannot be opted out again.
A benefit of opting out sooner rather than later is that the owner will not miss the opportunity to do so before the transition period expires. In this respect, note that applications can also be opted out.
A disadvantage of opting out is the time and cost required to audit a portfolio, make decisions as to which patents should be opted out, and implement those opt-outs. See our checklist of what this involves, below.
A further disadvantage is that a third party may lock an opted out patent out of the UPC forever by commencing proceedings in a national court, as this prevents the owner from withdrawing its opt-out and so returning the patent to the jurisdiction of the UPC.
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What should the owner of a European Patent be doing now?
Every owner of a European Patent (EP) should consider carefully what that patent protects and how the patent functions within their business. Some businesses may own many patents, others few. Some patents may be more important to a business than others. Some businesses may be accustomed to litigating their patents when necessary, while other businesses may never have done so. Some patents may be licensed to third parties, or jointly owned. In other words, patents are used in many ways.
Against that understanding, an owner should then consider whether it is likely they will want to use the UPC in future, although it may be difficult to assess that fully until we see how the court operates. This can affect the opt-out decision because an opted out patent can be locked out of the UPC by a third party attack.
Then the owner should consider whether competitors or prospective licensees may seek to attack the patent in the UPC, as that is the risk that opting out within the sunrise period will guard against.
For any patent that is licensed, the owner should consider what the licensee may want to do, and what effect a third party attack in the UPC could have on its licensing business. Where there are multiple licensees it may be that the safest route is to opt out the patent.
For any patent that is jointly owned, the owner needs to contact the joint owner and come to an agreement about what to do. To get this done in time to opt out within the sunrise period may require fairly urgent action.
The owner of a significant patent portfolio, or one accustomed to litigation, may want to consider opting out some patents while leaving others in the UPC jurisdiction in order to see what happens. Some owners may want to keep patents in the UPC jurisdiction because they intend to use the UPC at an early stage in order to participate in the development of its procedures and remedies.
For guidance on the procedure for opting out patents, please see our checklist below.
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Can Unitary Patents be opted out?
The unitary patent is a new alternative to a classic European Patent designation for those countries that have ratified the Agreement on a Unified Patent Court. It will become available when the Agreement on a Unified Patent Court comes into effect in the fourth month following Germany's deposit of its instrument of ratification. The European Patent Office (EPO) will accept applications designating a unitary patent from the date of that deposit onwards. For further information, see our description of the unitary patent here.
Proceedings concerning a unitary patent may only be commenced in the UPC and cannot be commenced in national courts. It follows that unitary patents cannot be opted out of the jurisdiction of the UPC.
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How do I opt out an EP?
- Identify the EP bundle you want to opt out (see our guide to deciding which EPs to opt out). Note this can include current EP applications.
- Identify all the designations in the EP bundle concerned.
- Check which are within the UPC jurisdiction (this may change if further countries join the scheme, currently it is all EU member states minus Spain, Poland and Croatia; note this is not the same as the EPO signatory countries). These must all be opted out, or the opt-out will be ineffective.
- Check whether any of the designations within the UPC jurisdiction have the benefit of a Supplementary Protection Certificate (SPC). The SPC will be opted out with the designation.
- Check who owns each designation, and if there are SPCs check who owns these too. Do not rely on patent office registers, check your own records – the opt-out application must be made by all the actual owners of the designations and the SPCs or it will be ineffective across the whole bundle.
- Check with all other owners that they are willing to participate in an opt-out application (note you will need to obtain their written authorisation for you, or your agent, to act on their behalf).
- If any co-owners are unwilling to opt out consider what further steps to take, as you will be unable to opt out the bundle without their agreement.
- Also check whether any of the designations in the bundle are licensed, and consider what further steps to take if they are (licensees cannot decide on or implement an opt-out, but you may need to consider the commercial effect of an opt-out on the licensee and discuss it with them).
- You are now ready to opt out the patent bundle from the UPC's jurisdiction. Register at the UPC's online registry and read the information there concerning opt-out applications. The procedure is governed by Rule 5 of the Rules of Procedure.
- The registry site offers templates for the application form and for authorising your agent to submit the opt-out applications on your behalf. The site is not yet operational, but the current drafts of those templates are here
- Try to do this in advance of the inevitable rush that will occur when the sunrise period opens (see our guidance on the effect and timing of the sunrise period). Note also that the sunrise period will only last for three months, after which your EPs will be vulnerable to attack in the UPC, and that an opt-out is not effective until it has been recorded at the registry.
- The good news – there is no fee!
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To understand more about the new UPC, please visit our Unified Patent Court & Unitary Patent hub for more insight. If you would like to speak with one of our UPC specialists then please get in touch via our website or contact Gordon Harris.