The unitary patent and the Unified Patent Court (UPC) have moved another step closer since Austria’s deposit of its ratification instrument triggered the start of the Provisional Application Period (PAP) on 19 January 2022. The final preparations to establish the court are now underway. Although it will still be many months before the UPC becomes operative, patent owners everywhere are starting to prepare themselves now for the launch of this new court with its own procedural rules, no body of case law and judges from a range of countries and legal backgrounds.
There are many advantages of the new system but there will also be challenges, particularly when it comes to the predictability of UPC decisions. The different approaches adopted by different courts even where there is a central body trying to ensure the law is applied across the EU in the same way can be seen in the field of Standard Essential Patents (SEPs). For example, the decision of the European Court of Justice ("CJEU") in Huawei v ZTE aimed to set a common standard for patentees and implementers of SEPs to comply with EU Antitrust Law, however, there is still no common understanding as to whether the courts should set a FRAND royalty rate on their own.
This article gives an overview of the current approaches to FRAND and other pressing issues across Europe, and comments on the extent to which these different approaches may influence the decisions of the UPC.
Will an injunction be an automatic remedy in the UPC?
Although it is fair to assume that the wording of Art. 62 and 63 UPC-Agreement ("UPC-A") does not allow for an automatic injunction, it is unclear the extent to which the UPC will adopt an effective proportionality test. Comparing the wording of these provisions for a preliminary (Art. 62 UPC-A) and a permanent (Art. 63 UPC-A) injunction, it is clear that Art. 62 para. 2 UPC-A expressly requires the court for preliminary measures "to take into account the potential harm for either of the parties resulting from the granting or refusal of the injunction". However, Art. 63 UPC-A does not expressly require the court to balance the interests of the parties when considering whether to grant a permanent injunction. It’s therefore possible that proportionality will be applied to preliminary injunctions while permanent injunctions will be granted on a more regular basis.
The different terminology in Art. 62 and 63 UPC-A to some extent mirrors the situation currently before the national courts. While most jurisdictions apply certain proportionality factors to a request for a preliminary injunction, this is uncommon for permanent injunctions. For example, both Italy and Germany (in Germany only very recently) codified a proportionality test in their national Patents Act for permanent injunctions. However, this proportionality test has essentially not been applied in Italy since its introduction in 2006 and in Germany, the courts have already indicated that they will probably stick to the principles of the existing case law according to which a permanent injunction will only be denied in very exceptional cases (cf. Federal Court of Justice, 10 May 2016, X ZR 114/16 – Waermetauscher). In Germany, there is no known case in which a defendant has successfully avoided a permanent injunction.
The Netherlands is one of the few countries in Europe that takes into account proportionality factors before granting a permanent injunction namely whether the remedy sought is proportionate to the extent and severity of the infringement and the facts of the case. According to Belgian Law, a permanent injunction order against an intermediary is subject to a proportionality test. Art. 63 para. 1 UPC-A also makes explicit reference to intermediaries.
In preliminary injunction cases, however, the urgency of the application is usually considered (e.g. in Germany, the Netherlands or Italy) as is the public interest, especially in life sciences cases (e.g. Italy, cf. Court of Turin, 16 June 2021, Edward Lifesciences v. Meril Life Sciences), or more generally the proportionality of provisional measures in light of the specific circumstances of the case (e.g. France, Paris Court of Appeal, 14 February 2020).
It will therefore be some time until it is clear how any of the above factors will be taken into account by the UPC and the extent to which other factors will influence its decisions, e.g. whether the patent owner is a non-practising entity or a direct competitor of the alleged infringer.
Doctrine of Equivalents
Since neither the UPC-A nor the Unitary Patent Regulation contain a specific provision relating to the extent of protection, the UPC will probably rely on Art. 69 EPC to determine the scope of a Unitary Patent. Article 2 of the Protocol on the Interpretation of Article 69 EPC expressly includes equivalents in the scope of protection of a European Patent.
In accordance with the Protocol, the doctrine of equivalents is accepted by all member states of the UPC as meaning that an implementer’s product or process can infringe a patent either by falling within the literal scope of the patent or if it is considered to be equivalent to the claimed invention.
How will the UPC determine whether a certain solution is an equivalent? Having a look at the approaches taken by the different member states, it can be seen that each national court uses a couple of questions in order to determine whether a solution has an equivalent effect and whether a skilled person would consider the solution as equivalent with a view to the wording of the claim. However, given that the questions are phrased differently in each of the member states, the courts do not reach the same conclusion in each case.
Statements or amendments made by an applicant during the examination procedure may also be important when determining the patent’s scope of protection. If the doctrine of file wrapper estoppel applies, a patent applicant will be bound by any statement or amendment made during the examination procedure to narrow the patent’s scope of protection to avoid prior art or overcome added matter or insufficiency concerns. Some courts, for example, the Netherlands, strictly rely on file wrapper estoppel and others, such as Belgium, recommend is should be applied. Many other courts, however, do not apply file wrapper estoppel (e.g. France, Germany and Italy). In fact, a limitation introduced during prosecution is not binding even if the limitation/amendment was made to overcome concerns with respect to added matter (Art. 123 par. 2 EPC).
Therefore, the UPC not only needs to formulate its approach to the doctrine of equivalents but must also adopt a clear approach to the extent to which file wrapper estoppel can limit the extent of protection, not only with a view to equivalents but also to claim construction in general.
Revocation of patents
Unlike the German bifurcated system, the UPC-A allows a defendant to file a revocation counterclaim against the asserted patent in a pending infringement claim (Art. 32 (e) UPC-A). The Local and Regional Divisions , after having heard the parties, have 3 options (a) hear both claims in a single case (as is standard practice in almost all of the UPC member states); (b) refer both cases to the Central Division or (c) refer only the revocation counterclaim. If only the revocation counterclaim is referred to the Central Division, the Court may either stay the infringement proceedings or may render a decision on the merits of the infringement claim on the condition that the patent will be finally held valid (Art. 33 (3), 56 (1) UPC-A and Rule 118 no. 2 (a) Draft Rules of Procedure).
Bearing in mind the downsides of the German bifurcated system and in view of the fact that almost all national courts (e.g. Italy, Belgium, France, Austria and the Netherlands) are used to hearing both, revocation and infringement, in a single case, we expect that the UPC will aim to keep the claims together, either at a local/regional level or the central level.
Which standards will the UPC apply when considering the admissibility and patentability of a Unitary Patent? Pursuant to Art. 65 para. (2) UPC-A, the UPC will rely on Art. 139 para. 1 and 139 para. 2 EPC which refer to Art. 54 and 56 EPC among others when considering the patentability of the claimed invention.
Although the national courts and the European Patent Office all rely on Art. 54 and 56 EPC when assessing the novelty and inventiveness of a European Patent, there is no one approach to application of these provisions. For example, some national courts (e.g. Italy or the Netherlands) follow the problem-solution approach of the European Patent Office to inventive step, while the German Federal Court of Justice expressly deviates from the EPO's approach and applies its own test based on the object of the invention. When it comes to added subject-matter under Art. 123 par. 2 EPC, the threshold that patentees need to meet is not the same, especially since the EPO has established quite a high threshold.
An interesting strategic aspect from the implementer’s side, when it comes to the revocation of patents, is the fact that the UPC-A allows for parallel revocation and EPO opposition proceedings (Art. 33 (8), (10) UPC-A). Although the UPC has the discretion to stay the case if a decision of the EPO is imminent, the implementer in theory can have two shots at revocation in parallel. We will have to wait and see whether the UPC will, in such a case, prefer to make its own decision or stay the case pending the outcome of the EPO proceedings.
Finally: The FRAND-defence under the UPC
Putting aside the question of whether the UPC will have jurisdiction to decide FRAND issues in a standalone action (e.g. a declaratory judgment for FRAND compliant behaviour of SEP owners/implementers), it is likely that the UPC will decide on FRAND when brought as a defence in infringement proceedings (Art. 32 (1) (a) UPC-A). Bearing in mind that a standard essential Unitary Patent gives protection not only in a single country but across all member states, the question of whether a SEP owner can successfully obtain an injunction and the circumstances in which this will be possible, becomes even more important for the implementers of a certain standard.
Although some might expect that FRAND related questions will be mainly decided under EU Antitrust Law, it is possible that there will also be a focus on the national laws applicable to the IPR policies of the respective Standard Setting Organizations ("SSOs"). Art. 24 para. 1(e) UPC-A expressly provides for the consideration of national laws.
Although the German courts have so far focused on EU Antitrust Law when it comes to the question whether a defendant can successfully assert a FRAND defence, and they have not taken into account the contractual obligations arising from the IPR policies of the respective SSOs, the opposite can be seen in other national courts. In France as well as the Netherlands, despite the decision of the CJEU in Huawei v. ZTE (16 July 2015, C-170/13), the courts rely on the IPR policies of SSOs and the corresponding applicable national law when it comes to the question whether a SEP owner can justifiably ask for an injunction. If the UPC decides to not only rely on EU Antitrust Law but also takes into account the contractual relationship between the SEP owners and the SSOs, this could lead to the applicable national law influencing the Court's decision and lead to further uncertainty.
Willingness to license and FRAND royalty setting
Irrespective of the legal doctrine that is currently applied by different national courts, what is common to all countries in which relevant national case law exists, is the fact that the courts have the clear intention not to make life easy for implementers. Rather, the Dutch and German courts have plainly expressed an intention to avoid any delaying tactics by implementers. It is not sufficient for implementers to formally attend some meetings they need to work proactively towards the conclusion of a FRAND licence agreement. Although so far Italy has not followed such a strict approach, it can be seen from existing case law that the Italian courts also require implementers not only to request a licence but also to contribute seriously to the licence negotiations. Based on Italian case law, it is in principle not possible to request a licence only after the infringing activity starts.
Unlike the UK, none of the national courts of the UPC member states has so far had the opportunity or have wanted to set a FRAND royalty rate. Although the Dutch and German courts have ruled on the question whether the royalty offered by the SEP owner or the implementer can be considered fair, reasonable and non-discriminatory, none of the courts have so far done their own calculations. While, in the Netherlands, such royalty setting by the court is theoretically possible, no party has so far requested the courts to do so, the German courts, on the other hand, have expressly refused to set a royalty rate. The Federal Court of Justice in one of its two "FRAND defence" decisions (5 May 2020, KZR 36/17) stated that the royalty could not be objectively determined by the court but must be subject to negotiation between the parties.
Whether the UPC can or must set the FRAND royalty rate will only have practical relevance if the case law that needs to be established does not come to an end if the implementer is found to be an unwilling licensee (bearing in mind the rather high threshold that might be required) but also takes into account the royalty rate that has been discussed between the parties.
Disclosure of comparable licence agreements and measures to protect confidentiality
Existing national case law requires a SEP owner to disclose comparable SEP licence agreements that have already been concluded in order to prove that the current licence offer complies with FRAND. Even if disclosure of comparable agreements is not required in every case, the SEP owner at least needs to provide evidence relating to the core terms of the agreement, especially the royalty rate.
Since SEP owners are often reluctant to disclose this type of business information, national law and the UPC-A as well as the Draft Rules of Procedure provide a regulatory framework that can, on request, require not only the SEP owner but also third parties to disclose licence agreements (cf. Art. 59 UPC-A and Rule 191 Draft Rules of Procedure). These provisions provide for the protection of confidential information and give the Court the possibility to limit the disclosure to a limited circle of people.
In some UPC member states it is already common practice to apply quite a strict confidentiality framework. While the Dutch courts impose a huge fine in case of breach of confidentiality and the circle of people who can access the documents are limited to two per side, it is possible under Italian law to provide for an "attorneys-eyes-only" disclosure.
This article can only provide a few insights on the multitude of questions and uncertainties that come to mind when considering how the UPC will decide a case and how to prepare strategically when bringing or defending a UPC action. One key take away is that it will essential to consider the national law background of the judges of the division deciding a case. Although the Unitary Patent System clearly aims to set up a new system with an independent set of rules and does not intend to perpetuate national law, the judges will naturally look at the rules from their national legal backgrounds and understanding of the regulatory framework. This will, at least in the near future, influence how a certain division potentially decides a case and may only change when established case law of the appeals court exists.
Key contacts included Markus Gampp, Philipp Cepl, Frank Valentin, Gualtiero Dragotti, Roberto Valenti, Paul Reeskamp, Sabine Fehringer, Alexander Tsoutsanis, Kokularajah Paheenthararajah, Sonja Bohusch, Laura Gastaldi and Gilles Hachez.