By Nicola Dagg, Allen & Overy, andAstrid Arnold, Peerpoint
There can be no doubt that business confidence in the European unitary patent project is growing as the new Unified Patent Court moves towards go-live in early 2017. Recent surveys suggest that a majority of patent-heavy companies expect the new European unitary patents to make up all or most of their future filings, and many companies are expressing an intention to use the new court system from the outset – at least in relation to some of their European patents.
This should not surprise us, as the system offers what many European patentees have always wanted – a single, unitary patent covering 25 countries (a larger customer base than the whole of the US) and a single, European patent court for enforcing both classic European patents and the new unitary patents. The new system promises pan-European injunctions and other remedies as well as greater legal certainty as the decisions of the common European appeal court will develop a consistent approach across Europe. Litigation costs are projected to be relatively low and judgments quicker than in many European jurisdictions at the moment. Many of the fears about the new court have also now been set aside – in particular, confidence in the quality of the judges is increasing as many genuinely experienced patent judges have now come forward.
As with any new system, however, uncertainties remain. This article looks at some issues which are of particular interest to the tech sector.
Article 27(k) of the Unified Patent Court Agreement (UPCA) introduces a new exception to patent infringement that mirrors the exception to copyright infringement in Articles 5 and 6 of the Software Directive (2009/24/EC) relating to decompilation and interoperability. As the IP minister Baroness Neville-Rolfe explained in the House of Lords debate, the high-tech and ICT sectors have expressed widespread concern about the scope of this exception, the terms of which are very unclear. A narrow interpretation of the exception would be that acts carried out within the exception in the Software Directive will not constitute patent infringement either. A safeguard here would be that under the Software Directive acts of decompilation must be indispensable to achieving interoperability with another program. Another possible interpretation, however, would be that the provision introduces a new patent exception in relation to interoperability information the scope of which is very unclear. It is possible – some would say likely – that the Unified Patent Court (UPC) will interpret this exception narrowly. However, many companies within the tech sectors have understandably been reluctant to take this risk. In response to this the draft UK legislation implementing the UPCA has adopted a “safe haven” approach whereby the exception will be applied to European patents (UK), but not to UK national patents, giving companies the ability to apply for UK patents if they are particularly concerned about this issue.
Compared to the US, the European patent landscape has until now been relatively free of “trolls”: non-practising entities that use the threat of injunction to obtain unjustifiably high licensing fees. The fear is, however, that the availability of pan-European injunctions at the UPC will hand considerable bargaining power to trolls, increasing the incidence of trolling in Europe. Clearly the threat of a pan-European injunction will be a potent one, as such an injunction could potentially ban sales across the whole of Europe on the basis of evidence in one country alone. The criteria the UPC will apply when granting injunctions is, therefore, crucial. In particular, it matters whether the court will grant a final injunction more or less automatically if a patent is held to be infringed, or whether it will exercise enough discretion and flexibility to refuse an injunction or find a more tailored solution in cases – including some “trolling” cases – where a standard, prohibitory injunction would be disproportionate or oppressive. It is clear that the court will have a discretion – article 63 UPCA provides that the court “may”, not must, grant an injunction. However, the criteria to be taken into account in granting permanent injunctions are not spelled out. It remains to be seen, therefore, whether the court will follow European jurisdictions such as Germany in granting automatic or near-automatic injunctions where infringement has been found, or whether it will lean more towards jurisdictions such as England where an injunction is regarded as essentially a discretionary remedy. The former approach would arguably favour the trolls. That said, even in England it is rare for the patentee to be deprived of its injunction. As, given the composition of the judges, it is likely that the UPC’s approach to this issue will be based on an amalgam of the different approaches across Europe it seems unlikely that it will move significantly towards the position of the US courts which, following the US Supreme Court’s eBay decision (2006), are more ready to refuse injunctions in some “trolling” situations.
Whether the availability of pan-European injunctions will be enough to bring the trolls to the UPC is, however, a different question. There will be significant factors militating against trolling in the UPC including the possibility of central revocation and the fact that (within limits) the loser will pay the winner’s legal costs thus increasing the risk to the troll in bringing an action.
On the basis of the court’s rules as currently drafted, it is unlikely that “declarations of essentiality” as developed by the English courts will be available at the UPC. A declaration of essentiality is a declaration by the court that a particular patent is essential to a standard – ie, it effectively states that any device which complies with the standard must inevitably infringe the patent. This is helpful, because the standards organisations do not check whether patents declared essential to the standard are in fact essential, so there is a real danger of over-declaration by patentees. Declarations of essentiality are a useful tool in litigation, because they remove the need to establish infringement in respect of every device separately, so saving time and money. If the patent is essential, the manufacturer knows it will need a licence in respect of every standard-compliant device. Parties wishing to take advantage of declarations of essentiality may wish to develop strategies to litigate the patent before the English national court where possible.
Article 20 UPCA confirms that the court must respect the primacy of Union law. We can therefore expect it to apply the decision of the Court of Justice of the European Union (CJEU) in Huawei v ZTE (April 2015). This decision made it clear that the proprietor of a standard essential patent (SEP) may, in some circumstances, seek injunctive relief against infringers despite its undertaking to the standard-setting organisation that it will grant licences on FRAND (fair, reasonable and non-discriminatory) terms. Huawei v ZTE established that the SEP owner may seek an injunction if, very broadly, the prospective licensee does not negotiate diligently, and it outlined a framework for the negotiations. However, it leaves much unsaid, such as, for example, the central question of what constitutes a FRAND offer or how a FRAND rate should be determined. European courts have still not produced a clear answer on such questions, and the application of the Huawei decision by different European courts has so far not been consistent. This lack of certainty has serious implications, particularly in the mobile communications field where a number of recent, high-profile cases have arisen out of a breakdown in the negotiation of FRAND licences. This is a good illustration of why a single European patent court system is important – ultimately SEP owners and licensees will be looking to the UPC to give legal certainty in relation to such issues in the future.
One of the major drivers behind the introduction of the IP Enforcement Directive (2004/48) (implementation date April 2006), was to ensure that adequate measures were in place in all Member States to enable IP right holders to obtain evidence of infringement, and the provisions of the UPC Agreement and rules of procedure of the new court build on the directive in this respect. This issue is of particular importance in IP litigation as infringement is often hidden. In the ICT and mobile communications fields, proving that an infringing method is being used is often a complex issue and may require information which is only known to the alleged infringer. Traditionally, the English court’s solution to this problem has been through the process of disclosure, including pre-action disclosure, and the English courts have developed special procedures for disclosure in relation to patent litigation. The UPC offers a variety of means to obtain evidence of infringement, including a more limited form of disclosure in the form of orders to produce evidence as well as orders to preserve evidence and inspect premises (an order based on the French saisie contrefaçon which will enable a technical expert to analyse alleged infringing articles and processes). How widely these procedures will be interpreted and the question whether they will produce the full scope of the information which can be obtained through disclosure in the English court has yet to be determined.
There is no doubt that the new court will bring many challenges and uncertainties as patent owners and practitioners get to know the system, and the system itself beds in. Patent owners are expected to be cautious at first and many have said that they will opt some patents out of the UPC whilst they see how the system develops. It is striking, however, that most intend to commit at least some of their patents to the new system. Surveys also suggest that patent owners by no means agree on whether to commit to the UPC their strongest patents (on the basis that these are less likely to fall to a central revocation action) or their weakest patents (on the basis that they would rather wait and see in relation to their “crown jewels”). However, despite some uncertainty, the benefits of a system that is able to deliver pan-European decisions in a relatively short time and at a relatively low cost are clearly appreciated by patentees.