Hiroshi Sheraton
Baker & McKenzie

The UPC Agreement doesn’t contain any mention of the applicable law in relation to validity, says Hiroshi Sheraton of Baker & McKenzie

There is no provision for validity in the UPC Agreement—what does this mean?

The Unified Patent Court (UPC) Agreement sets out the procedural framework and background law to be applied in relation to infringement of unitary patents, as well as European patents that are not opted out of the system. What it doesn’t contain is any mention of the applicable law in relation to validity. The consequence of that is that the UPC judges are going to have to decide, according to the applicable laws, on the validity of patents.

There’s a hierarchy of laws set out in the agreement that says European law should be the primary law applied, followed by the European Patent Convention (EPC), international agreements applicable in the member states and then national law. The majority of law relating to validity of patents is found in the EPC. However, depending on where you are, national approaches vary, both in terms of the procedure, and in some cases, the substantive tests used when applying the same EPC law.

It will take time and a number of cases (and appeals) before it really becomes clear what approach will be taken by different divisions of the UPC in relation to validity and until a common system is established by the Court of Appeal.

Will the UPC’s failure to mention validity cause patent owners to opt out of the system?

No, not by itself, although quite a few pharmaceutical companies are opting out for many of their blockbuster drugs because of the risk of the unknown. They see that risk as being too high for their most important drugs and patents. They would rather go through the current system of litigating in each jurisdiction—as fragmented as it is.

Of course, over time, as the body of case law at the UPC develops, there will be a number of Court of Appeal decisions and I would expect, after five years of operation, there will be at least a bedrock of common law across the entire system.

Do you think patent holders are optimistic about the creation of a single court for Europe?

It depends where you’re coming from. Certainly, for small companies, it presents a number of significant advantages over the current system, such as: one court will cover the majority of Europe; patent owners will get a decision relatively quickly compared to litigating a case in each participating country; it will be significantly cheaper; and it will eventually be much more straightforward.

There are also some patent owners that are fearful that the single court will attract ‘patent trolls’, because it will be much cheaper and less complicated to litigate and force a settlement. This fear is reflected in a number of big technology companies expressing explicit concerns about potential for abuse by non-practising entities. The system is unknown and, at a minimum, it offers the opportunity for a patent owner to wield a lot of power against alleged infringers, by threating to shut them down across the whole of Europe.

Whether or not that comes to pass depends on the judges and the quality of their decisions.

How will fees work for the UPC?

The proposed court fees are not yet finalised, although broadly they feature a fixed cost and value-based element with concessions made for SMEs and parties that are unable to afford them. Several important questions remain, such as how value will be assessed and the criteria for qualifying for reduced fees.

However, the system is supposed to be self-funding which leads to further uncertainty about what the fees will be in the future. The fees outlined already are based on projections for how many users there will be. If those projections miss the target and there are fewer users, then fees could be affected. If the sums don’t add up then the fees will need to rise.

When will the UPC come into force?

I think 2017 is a reasonable estimate, I can’t see it happening before the end of 2016 because there is still a lot left to do. Quite a few countries still need to ratify the UPC Agreement before the whole system can come in to force. Having said that, a lot has already been achieved, including changes to the Brussels Regulation, developments of the procedural rules and choosing several court buildings as well as setting up the IT systems and the judge training centre in Budapest.

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