Patents Trends 2016

It was reported that patent applications rose by 4.8 per cent to 160,022 in 2015, with the total number of filings increasing 1.6 per cent to 278,867. Patent lawyers described a high level of activity, particularly across the pharmaceutical, technology and life sciences industries, including an increase in disputes.

Yet due to the confidential nature of much of the information involved in disputes across these industries, there has also been a corresponding, self-perpetuating rise in the use of alternative dispute resolution and a tendency for claims to settle rather than face the publicity of litigation. More widely, the sector is facing significant changes. European practitioners are gearing up for the long-awaited launch of the Unified Patent Court next year, yet it still faces significant uncertainties over its future due to the current economic and political pressures bearing down on Europe.

Further afield, the Russian Intellectual Property Court is providing a promising model for national intellectual property courts, and it is now in its third successful year of operation. In America, the legislation intended to curb the grip of patent trolls on the market has been effective, though practitioners spoke of significant changes resultant in the legal landscape. As such patents lawyers are finding themselves in a period of waiting, before many of the effects of these changes come to fruition.  

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Credit: istock.com/novielysa

Heightened patent activity

Practitioners reported a continuation in the boom in filling and litigation in the pharmaceutical and life sciences, biotechnology and medical devices industries over the past 12 months. This is driven in part by the fact that many drug patents are expiring, and so generic pharma companies are now seeking to enter these markets. In addition as technology advances, the fields of life sciences, biotechnology and medical devices are converging more and more, with the increasing use of IT and electronic software in medical treatment and its delivery. Despite generating much work for firms, a high level of niche expertise is required from lawyers when tailoring their legal services to clients in these industries. As such this boom provides a potentially lucrative opportunity for firms to capitalise on the expertise of their lawyers and increase their market share over competitors. Equally firms looking to expand the expertise of their IP practice would do well to consider increasing their capabilities in these industries.

Increase in alternative dispute resolution in UK

This year has also seen a rise in alternative dispute resolution for patent disputes in the UK, particularly in cases involving the technology industry. With the progression of the Internet of Things, the proliferation of services provided by digital and robotic devices requires increasing connectivity between different devices. To allow for this, technology standards are developing, which leads to a surge in the creation of standard-essential patents (SEPs). However, litigation involving SEPs carries the risk that sensitive information concerning, for example, licensing agreements and royalty rates will become public and so weaken a patent holder's bargaining position in negotiations with further potential licensees. The desire, therefore, to keep proceedings private and confidential has resulted in the growth of arbitration as a means to settle patent disputes. This trend looks set to continue, providing an opportunity for firms to develop their alternative dispute resolution services as part of their patent practice.

In turn this is expected to fuel further patent disputes, as alternative dispute resolution can often result in uncertainty regarding the court’s position on the legal issues involved in the dispute, which then encourages parties to reach a settlement, and so on. As a result practitioners report that the market is very vibrant with plenty of work around.

In such an environment in-house counsel are suffering from budgets pressures, in part due to the increased number of disputes they are handling. Boutique firms are finding themselves particularly well placed in the market at the moment, able to hoover up this surge in activity by providing specialist legal services to in-house counsel at a lower cost than the larger firms. Equally, global law firms can look to increase their share of the larger, multinational disputes occurring, as they have the necessary capacity to handle them.  

The Unified Patent Court – progress and uncertainty

The Unified Patent Court (UPC) was the most talked-about upcoming issue among European practitioners we spoke to. After suffering several delays, the UPC is set to become active in 2017, and arguably, represents the most important change ever seen in European patent litigation. The court will have a decentralised structure, with the central division of the Court of First Instance located in Paris and further regional and local divisions in other major European cities. UK law firms are expecting to benefit from an uptick in the life sciences industry due to the presence of this division of the court in London, offering the chance for firms to further specialise their services to the sector.

The UPC will provide automatic, widespread protection and legal enforcement of a unitary patent across the participating EU member states, with English, French and German set as the languages for the system. This will play to the strengths of larger law firms with offices in the major European countries, as the potential for such broad enforcement through the UPC will benefit those firms who can provide the capacity to handle the larger cases for major clients. In addition, for the first few years the current system of enforcement within each European country will run in parallel, allowing businesses to choose between the new and the old systems when enforcing their patents. Firms with a presence in all jurisdictions will be able to offer advice and representation in both systems and thus a wider choice for clients in their litigation and filing strategies.  

Equally the UPC offers significant opportunities for smaller boutique law firms to expand the reach of their patent practice, as “it will no longer be so important for firms to have an actual presence in the different EU countries”. Boutique firms will be able to offer their services to a wider range of clients geographically, as well as collaborate with the very best partner firms across the jurisdictions to offer clients an elite service.  

Such a tremendous boost to the EU legal framework has seen many law firms taking advantage of the opportunity to be involved in the setup and development of the court. Increasing their lawyers’ knowledge of the system as well as gaining insights from partaking in lobby groups and creating specialist UPC teams, cultivates a competitive advantage for firms and allows them to capture the market where clients and in-house counsel are yet to be up to speed. Firms may particularly see an increase in filing and litigation from businesses outside of the EU, such as Japan, Korea and America, as the possibility of enforcing their patents across the whole of the EU might be an attractive proposition for business looking to expand. 

Despite progress, the UPC is still facing some uncertainty as to its future. The EU is experiencing turbulent times, including terrorist attacks in France and Belgium and the spiralling migrant crisis. These concerns might make the EU temporarily less attractive as a jurisdiction for investment from non-EU companies. Of particular significance over the coming months will be the outcome of the UK’s referendum on its position within the European Union. An exit will have important administrative consequences for the life sciences branch of the UPC, and may in fact contribute to undermine the unified patent itself if companies have to apply separately for both a UK and EU patent. This is added to by the fact that countries such as Greece and Spain have been reluctant to adopt the UPC from the outset. There is a risk that companies may opt to continue to solely use the current system of enforcement and file for a patent in the specific European countries in which they wish to trade. This has the additional benefit of businesses avoiding “putting all their eggs in one basket”, as their protection will disappear throughout Europe if they lose a patent through the UPC. On the flipside, those countries who do not fall within the jurisdiction of the UPC may find companies less inclined to bring their patents there, especially when such businesses can enforce their patents efficiently and cheaply throughout the rest of the EU instead. Law firms will have to be flexible to meet the requirements of their clients and respond to these uncertainties as they are resolved.

Russia

Russia’s recently created Intellectual Property Court has been going from strength to strength. Lawyers have praised the court for providing the necessary expert technical knowledge and producing timely, accurate and consistent outcomes. Indeed, by all report it is proving to be a very efficient and effective means through which to handle the growing number of intellectual property-related law suits in Russia. The court opened in July 2013, and in its first four months of operation received over 350 claims in its capacity as court of first instance, and handled 390 appeals in its capacity as a court of cassation. The existence of this IP court demonstrates the Russian government’s dedication to reinforcing the national framework for IP protection and so nurturing an increasingly conducive environment for foreign investment, innovation, and boasting business confidence in the jurisdiction. As such, Russia is viewed in the market as an opportunity for foreign and domestic law firms looking to expand the reach of their patent law services and the market continues to see new entrants as it matures ensuring that clients have a wide range of choice.

Tackling patent trolls in the US

Practitioners in the US reported that the legal reforms aimed at restoring balance in the patent system and curbing the grip patent trolls had on the market, have largely worked their way through. These include the 2011 America Invents Act (AIA) aimed at improving the quality of patents and reducing the strain on the judicial system, as well as the patent reform proposals of 2015 designed to reduce the ability of firms to engage in abusive behaviour – including fee shifting, customer stay provisions, heightened pleading standard and transparency, and demand letter reform. Yet serious concern was also expressed by practitioners that the shift towards proceedings being handled in the Patent Office may change the current legal landscape. As proceedings move away from the courts to the Patent Office, the amount of money which firms are able to charge to clients in legal fees falls considerably. Firms may well have to look within to improve their efficiency and processes to remain profitable; some firms even reported the need to reduce staffing levels. As such, a “shake-down” is anticipated in the legal market, separating firms into “the haves and the have-nots”. Both boutiques and global law firms with well-developed practices focusing on high-value, complex disputes are expected to continue to do well, but mid-market firms are facing increased competition due to a decreasing amount of work available, and may need to come up with new strategic development plans. As a result of these pressures, firms report an increasing interest in Europe and the market they can capture there, with the anticipated UPC in Europe providing a potentially lucrative opportunity for firms representing US clients interested in expanding the reach of their patents outside the US. 

“Patent lawyers are in the silence before the storm.” While this sector is going through exciting times, it is also facing and feeling the legacy of some significant changes and challenges causing the legal landscape to become peppered across the different jurisdictions. Ultimately the sector will have to wait and see how these changes will play out and the full affect they will have.

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