The centrepiece of the patent reform package is the Agreement on a Unified Patent Court (UPC), signed by 25 Member States of the European Union in early 2013 (so far, out of the 28 EU Member States prior to Brexit, only Spain, Croatia and Poland have not joined the Agreement). The UPC will make it possible to enforce, attack and defend a patent before one single court with effect for all participating Member States. The UPC will have jurisdiction not only for the new Unitary Patents, but also for the existing European Patents, pending patent applications and Supplementary Protection Certificates. Thus, unless a holder of existing European patents decides to "opt-out" of the new system (see below), those patents will be subject to the jurisdiction of the UPC and its new procedural rules. Moreover, every business operating in Europe can potentially be sued for (alleged) infringement of existing European "bundle" patents before the UPC starting with its first day of operation.

Structure of the UPC

The Unified Patent Court is one common court for the participating Member States, which consists of a Court of First Instance and a Court of Appeal. The Court of First Instance is composed of local divisions (set up in individual Member States), regional divisions (which can be set up jointly by Member States that do not wish to establish a local division of their own), and the central division.

UPC 

Generally, each Member State may set up one local division, but an additional local division may be set up in a participating Member State for every one hundred patent cases per calendar year during three successive years. The current plans anticipate that in view of its high number of cases Germany will be the only exception to the one local division per Member State rule, with four local divisions (based in Düsseldorf, Munich, Mannheim and Hamburg). The first Member States to announce the formation of a regional division were Sweden, Estonia, Latvia and Lithuania, which agreed to set up a joint "Nordic-Baltic regional division" seated in Stockholm. Further regional divisions may be set up perhaps in particular in southern and/or central eastern Europe. The central division will be seated in Paris, with sections in London and Munich. The appellate court will be set up in Luxemburg.

The local jurisdiction in individual cases will be determined amongst the local and regional divisions in view of the place of infringement or the defendant's seat. Within the central division, cases will be attributed to the three sections in Paris, London and Munich according to the subject matter based on the WIPO International Patent Classification.

Unitary patent city image

In order to exercise its function, the Unified Patent Court needs to be granted special privileges and immunities by the national legislation of those countries where the divisions of the court will be situated. To enable that, the Member States participating in the UPCA signed the Protocol on Privileges and Immunities of the Unified Patent Court in June 2016. For the Protocol to come into force, France, Germany, Luxembourg and the UK must deposit their instruments of ratification with the European Council as the three Central Divisions and the Court of Appeal will be situated in these countries. Until now, only France and Luxembourg have ratified the Protocol. Please see the status of the ratification process here.

Language of the proceedings

The proceedings before the local divisions will be held in general in the official language of the Member State where the respective local division is seated. However, Member States are also free to permit the use of further languages as languages of the proceedings. For example, in Germany and in France a debate about the use of English as a permissible second language for proceedings to be held in is ongoing. At the regional divisions, the participating Member States are free to decide on any language to be the language of the proceedings before that regional division. Sweden, Estonia, Latvia and Lithuania have agreed on English as the language of their joint future Nordic-Baltic regional division. Generally, parties are also free to agree, with the consent of the court, on the language of the patent as the language of the proceedings. At the central division, the language of the patent, which is currently English for the vast majority of European patents, will always be determinative. Finally, the Court of Appeal will be using the language of proceedings that was applicable in the first instance.

Composition of the panels

The panels of the Court of First Instance shall have a multinational composition and shall generally sit in a composition of three (legally qualified) judges. At local divisions with more than 50 cases per year, the panel will be composed of two legally qualified judges from the Member State hosting the division and one legally qualified judge from other Member States. At local divisions with fewer than 50 cases per year, the composition will be the other way around.

Upon the request of a party or the panel, one technically qualified judge can be allocated from the pool of judges. Panels at the central division will always be composed of two legally qualified judges and one technically qualified judge. The Court of Appeal will be set up with two legally qualified judges of different nationalities and two technically qualified judges.

Infringement and validity proceedings

In principle, the local and regional divisions will have competence to handle infringement suits and grant provisional and protective measures, while the central division will handle revocation actions and declarations for non-infringement. However, under the new system, an invalidity action may also be brought before the local or regional divisions as a counterclaim to a pending infringement action. Thus, while the UPC retains the principle of bifurcation known from the German system, counterclaims for revocation can be an efficient means of defence within infringement proceedings, similar to the practice of for example the UK, the French or the Dutch courts.

If an action for revocation is filed as a counterclaim to a pending infringement action, the local or regional division in question will have various options to choose from as to how to proceed.

UPC

First, the local or regional division may, with agreement of the parties, refer both actions to the central division. Secondly, the local or regional division may proceed with the infringement action, but refer the counterclaim for revocation to the central division. In that case, the infringement proceedings shall be stayed pending the outcome of the revocation action (only) in case of a high likelihood of a successful revocation claim. Lastly, the local or regional division may proceed with both the action for infringement and the counterclaim for revocation. In practice many cases are expected to be handled as combined infringement and validity proceedings before the same division.

Court Fees

In February 2016, the Preparatory Committee agreed on rules for the determination of court fees and the ceiling of recoverable costs of the successful party after running a public consultation on the fee structure for the Court in summer 2015. According to these rules, the court fees are made up of a fixed fee combined with an additional value-based fee when the value of the case exceeds € 500,000. The value of the individual case is estimated according to certain guidelines that were also published in a final draft version by the Administrative Committee in February 2016. The rules for the determination of court fees also include a list of fixed fees for certain procedures and actions. The fees framework was set up to balance the need for the covering of the court's costs and the fair access to justice. SMEs therefore benefit from a 40% reduction in their court fees. The fee rules include further reimbursements for the use of a single judge, an early withdrawal of the case or a settlement.

Transitional period and alternative jurisdiction

The UPCA also includes a transitional provision governing the relation between the UPC and the national courts of the participating Member States. As a long term basic principle, the UPC will have exclusive jurisdiction for European patents (with and without unitary effect), European patent applications and SPCs. The national courts remain competent for the respective national patents only. However, during a transitional period of at least seven years, the plaintiff may choose to bring an action for infringement or for revocation of a European patent either before the UPC or before national courts. Thus, during the transitional period (which may be prolonged by up to seven years) there is de facto alternative jurisdiction of the UPC and the respective national courts. This raises practical questions, since an action in one court does not necessarily block another action on the same patent in the other court system. For example, a plaintiff may file an action against infringer A before a national court, but sue infringer B (for infringement of the same patent) before the UPC. Furthermore, even where a plaintiff brings an action for infringement before a national court, the defendant may choose the UPC's central division for its action for revocation.

Opt-out

During the transitional period, the patent proprietor has another option to avoid the jurisdiction of the UPC, namely by declaring an "opt-out" from the exclusive competence of the UPC. Such opt-out must be declared per patent, i.e. the proprietor may not opt-out for the territories of individual Member States only. The opt-out declaration may be filed from the start of the UPC up to one month prior to the end of the transitional period. If an opt-out is declared, the UPC will not have jurisdiction to handle cases regarding the infringement and/or validity of that patent, generally for the entire lifetime of the respective patent. Instead, infringement and validity of such patent must be decided by the national courts with effect only for the individual jurisdiction, as is the case under the current system. Generally, with a few crucial exceptions (see below), the patent proprietor may withdraw the opt-out, i.e. "opt-back-in", at any time. The declaration to opt-out as well as the withdrawal of the opt-out will be subject to a fee, the amount of which remains to be fixed. As yet however, no indication has been given as to the likely level of the opt-out or opt-back-in fees.

UPC

Patentees are well-advised to review their European patent portfolios and to consider carefully and well before the start of the new system whether to opt-out individual patents or entire (parts of) their portfolios. While the opt-out declaration as well as the withdrawal may be filed at any time during the transitional period, there are certain mechanisms built into the system which are beyond the control of the patentee and which may make a decision (not) to opt-out permanent.

First, the opt-out is permanently blocked as soon as an action for revocation is filed with the UPC. In this case the patent will be subject to the jurisdiction of the UPC and an opt-out will no longer be possible. Secondly, a similar mechanism applies in the opposite scenario: if the patentee declared an opt-out, the patent will be subject to the jurisdiction of the national courts. As soon as an action involving that patent is brought before any national court, the opt-out becomes irreversible and may no longer be withdrawn.

As a result of these and further complex rules on opting out and alternative jurisdiction, patentees should make use of the time remaining before the UPC is operational in order to make the necessary strategic decisions and thereby take full advantage of the unprecedented opportunities provided by the new system.

Procedure

The proceedings before the UPC are governed by some basic rules in the UPCA and in greater detail by the Rules of Procedure, the (currently 18th) draft of which is far advanced. After discussing the 18th draft with the Drafting Committee in June 2015, the Preparatory Committee adopted the latest version of the preliminary set of provisions on October 19, 2015. This draft is supposed to be the final one, but has yet to be reviewed by the European Commission on the compatibility with Union law and has to be formally adopted by the UPC Administrative Committee during the Provisional Application Phase. The Rules of Procedure were last updated in March 2017.

According to the current draft, the procedure before the Court of First Instance consists of a written, an interim and an oral procedure. The proceedings are supposed to be conducted in a way which will normally allow the final oral hearing on the issues of infringement and validity at first instance to take place within one year, which may be quite ambitious in many cases. The parties shall file their briefs electronically, for which an entirely new unitary IT system will be set up at all participating local, regional and central division courts and the Court of Appeals. In October 2014, a prototype e-filing and case management system was made available for testing by prospective users. After gathering the feedback, the UPC IT Team started to set up the case management system in July 2017 and asked business and service providers for comments on the integration of the system. The IT Team also published a note saying that the latest version of the case management system would be accessible as from August 2017 and that the key IT arrangement would be finalized in early 2018, but there is no final version available yet.

Provisional Application

In October 2015 the European Member States signed a Protocol to the UPCA that allows some parts of the Agreement to be applied provisionally from the day after 13 of the signatory Member States including Germany, France and the United Kingdom ratified the UPCA or informed the EU Council that they have received the parliamentary approval for the ratification. Please click here to see the current state of the ratification process for the Protocol on Provisional Application. The Provisional Application Phase was planned to start in 2017, but has not begun yet as the necessary ratifications of the UPCA and the Protocol on the Provisional Application have not taken place so far.

During the Provisional Application Phase (that is planned to take between six to eight months) the final decisions on the organisation and the practical set up of the Unified Patent Court will be made including the appointment of the judges. Only when the judges are appointed, the two Presidents of the Court will be elected, the Presidium will be set up and the Registrar and the Deputy Registrar will be appointed.

Outlook

The entire new system will not enter into force before the UPCA is ratified by at least 13 participating Member States, which must include Germany, the UK and France. As of early 2018, 15 Member States deposited their instruments of ratification with the European Council including France, but ratifications by the UK and Germany are still missing. The UK has only recently become ready to ratify the Agreement since the House of Parliament and the Privy Council both approved the necessary national legislation. In Germany, the ratification process was stopped in June 2017 by the German Federal Constitutional Court due to a constitutional complaint brought against the German national legislation enabling Germany to ratify the Agreement. Germany will not be able to ratify the UPCA and additional Protocols until the Constitutional Court renders a decision. Please see the status of the ratification process here.

Before the ratification process is complete, a slew of practical questions must be resolved, including the finalization of the implementation of the unitary IT system and the selection of judges. Also, further preparation is required regarding the various facilities, administrative support, and other questions on funding and budgeting, and further issues. Against this background, the UPC is currently not expected to enter into the Provisional Application Phase before late 2018 at the earliest and will probably not be fully operational before 2019. In addition to the postponed timetable, it is also still uncertain which factual and legal impact the upcoming Brexit will have on the UK's participation in the UPC. In the meantime, please do reach out to any member of our UPC team with any questions, and stay tuned for the latest developments.