OPT-OUT STRATEGIES DURING THE SUNRISE PERIOD FROM 1 MARCH 2023 TO 31 MAY 2023 – 2/3

As mentioned in our first Newsletter of 12 December 2022, it is now official: the UPC should open its doors and receive its first cases on 1 June 2023, i.e., two months later than the previously announced date of 1 April 2023¹. This second Newsletter will explain the strategic implications of the “opt-out” for European patent proprietors and European patent applicants.

The third Newsletter (to be published next month) will focus on the stakes, in particular from the procedural viewpoint, of the setting up of the UPC, which will lead to radical changes in litigation, in particular with regard to the (very short) time limits for judgment, damages, injunctions, etc.

Basic principles: UPC jurisdiction and opt-out

In the participating States², the jurisdiction of the UPC may be summarized as follows:

• As a general rule, all unitary patents (UP³) and classical European patents (EP) are subject to the jurisdiction of the UPC.

• However, during a 7-year transitional period⁴ from the date of entry into force of the Unified Patent Court Agreement (UPCA)⁵:
  • National courts or authorities will still have jurisdiction over an action for infringement or revocation of an EP patent⁶. In other words, during this period, the UPC and national courts will have concurrent jurisdiction over EP patent litigation: patentees will be able to choose to defend their EP patents, and third parties will be able to choose to attack these, either before the UPC or before a national court.
  • EP patent proprietors and EP patent applicants may decide to opt out from the UPC’s jurisdiction.⁷
  • By exercising the opt-out, EP patents will no longer be subject to the jurisdiction of the UPC; only national courts will have jurisdiction.
  • The opt-out may be withdrawn at any time (i.e., even after the end of the transitional period), provided that no action has already been brought before a national court in respect of the patent or SPC at issue⁸. This action, commonly called the “opt-in”, is irrevocable.

In non-participating States (see our previous Newsletter), EP patents remain subject to the exclusive jurisdiction of national courts.

¹ The UPC press release is available on this official link.
² Currently 17 EU Member States: Portugal, France, Belgium, Luxembourg, The Netherlands, Italy, Germany, Denmark, Austria, Slovenia, Sweden, Finland, Estonia, Latvia, Lithuania, Bulgaria, and Malta.
³ European patent with unitary effect, referred to as a Unitary Patent (UP) for simplicity.
⁴ Which may be extended for another 7 years, after consultation by the UPC Administrative Committee with the users of the system, 5 years after the entry into force of the UPCA (Article 83.5 UPCA).
⁵ The UPCA is available at this link. It is scheduled to take effect on 1 June 2023.
⁶ Article 83.1 UPCA.
⁷ Article 83.3 UPCA.
⁸ Article 83.4 UPCA.

Essential practical principles on the opt-out

The exercise of the opt-out is subject to several conditions that should be borne in mind:

• An opt-out is only possible for EP patents and for published EP patent applications⁹. There is no opt-out for a UP. The opt-out applies to all participating States designated in the EP patent; therefore, if a UP is granted, it will never be possible to make an application to opt out, even for those participating States which are not covered by the UP due to having joined the UPCA after the UP has been granted.

• It is no longer possible to opt out in case an action has already been brought before the UPC (in this case, the patent is forever “locked-in” in the UPC system).¹⁰

• An application to opt out may be made in advance, at the earliest 3 months before the entry into force of the UPCA, during the so-called “sunrise period”¹¹, which will start on 1 March 2023. This option to opt out early ensures that patent proprietors and patent applicants can avoid being “locked-in” in the UPC system, which would happen if a third party were to bring an action before the UPC on 1 June 2023 at 00:01.

• The application to opt out may still be made after the entry into force of the UPCA, at any time and at the latest 1 month before the end of the initial 7-year transitional period¹².

• Applications to opt out must be filed with the Registry of the UPC, via the “UPC Case Management System” (CMS). It is recommended to act through an authorized representative, such as a lawyer or a European patent attorney, due to the subtleties related to this application which will be explained in the following.

• When the EP patent (or patent application) is owned by several persons, all proprietors (or applicants) must file the application to opt out simultaneously¹³. Otherwise, the opt-out is invalid. If the person filing the application to opt out is not recorded as the proprietor or applicant in the (EPO or national patent office) registers, he must file a declaration to the effect that he is the proprietor of the EP patent or patent application.¹⁴

• If no action has been brought in the meantime before a national court¹⁵, the opt-out may be withdrawn at any time, i.e., the EP patent (or patent application) will be placed under the concurrent jurisdiction of the UPC (and ultimately the exclusive jurisdiction of the UPC, at the end of the transitional period). This is called the “opt-in”. A new opt-out cannot be made after an opt-in¹⁶. All the proprietors (or applicants) of the patent (or patent application) must simultaneously withdraw the opt-out, for the withdrawal to be valid¹⁷. The withdrawal is therefore no longer possible if a national action has already been initiated: in this case, the patent is “locked-out”.

• Since the UPC Registry will not perform any identity checks regarding applications to opt out or to opt in, some stakeholders have expressed concern about the risk of illegitimate and/or fraudulent opt-outs or opt-ins, which could expose a patent to action before the UPC or a national court against the wishes of the patent proprietors or patent applicants. The Rules of Procedure of the UPC (UPC-RoP) have been amended to address these concerns, via Rule 5A, which provides for a simplified and fast procedure with the Registry to have an unauthorized opt-out or opt-in removed upon reasoned request¹⁸.

• The application to opt out will become effective upon entry in the Register by the Registrar¹⁹. Unless the opt-out is withdrawn, it will remain in effect for the entire term of protection of the EP patent. In other words, it will continue even after the end of the 7-year transitional period.

⁹ Rule 5.1 of the Rules of Procedure of the UPC (UPC-RoP) available at this link.
¹⁰ Article 83.3 UPCA.
¹¹ Provided for in Rule 5.12 UPC-RoP.
¹² Article 83.3 UPCA.
¹³ Rule 5.1 (a) (1^st sentence) UPC-RoP.
¹⁴ Rule 5.1 (a) (2^nd sentence) UPC-RoP.
¹⁵ Article 83.4 UPCA.
¹⁶ Rule 5.10 UPC-RoP.
¹⁷ Rule 5.7 UPC-RoP, by reference to Rule 5.1 (a).
¹⁸ Rule 5A UPC-RoP.
¹⁹ Article 83.3 (last sentence) UPCA.

How to stand towards the opt-out?

As of 1 March 2023, patent proprietors and patent applicants will have to choose between two stances toward the opt-out:

• Do nothing, in which case all their EP patents and patent applications will be subject to the concurrent jurisdiction of the national courts and the UPC in the participating States; or
• File an application to opt out, for some or all the EP patents and patent applications in their portfolio, to exclude them from the UPC’s jurisdiction.

To assist in this choice, it is necessary to discern the advantages and disadvantages of being subject to the jurisdiction of the UPC.

The UPC will allow a centralization of patent litigation, with many advantages for patent proprietors and patent applicants:

• For transnational infringement litigation, it will be possible to bring a single infringement action before the UPC (instead of an action before each national jurisdiction where the infringement is alleged, as is currently the case), leading to a single ruling valid in all UPC participating States at the same time (i.e., initially 17 countries, and probably 25 or even 27 countries in the near future) with substantially reduced procedural costs;

• In general, the UPC should rule in patent cases faster (proceedings before the UPC are supposed to last one year²⁰) than national jurisdictions;

• It will finally be possible to obtain transnational prohibition measures, as is already the case for European trademarks and designs;

• The damages for infringement will be substantially higher (as the compensated acts of infringement will cover all UPC participating States);

• The UPC affords its users a variety of means of evidence²¹ to prove the alleged infringement (seizure or forced production of documents, opinions by experts, hearings of parties and witnesses, comparative tests and experiments);

• As soon as litigation before the UPC will be unified, one may hope for a greater harmonization at the European level, which will contribute to increase legal security. This is even more the case since the rulings of the UPC will be rendered by panels of judges selected among the most experienced in patent litigation in Europe, which panels will almost systematically include a technical judge specialized in the technical field of the patent (generally a European patent attorney or a former patent examiner).

Although it has yet to prove itself, the UPC should be a powerful tool for patentees, providing them with a one-stop shop for defending their patent(s) more effectively.

If one disadvantage of the UPC had to be mentioned – and it is quite important –, it is certainly that patent proprietors will risk central revocation of their patent. Indeed, with the UPC, a third party will be able to bring a single action for revocation before the central division²² (or before the local divisions, as a counterclaim to an infringement claim²³) and have the patent revoked in all the participating States at once. However, this risk must be considered in context: a European patent can already be opposed at the EPO, within a 9-month period following its grant. The only difference is that this central attack will be possible at any time.

Nevertheless, as a hedge against this risk, it will be possible for patent applicants in some participating States, including France and Germany, to further secure their invention by “double patenting”. In other words, as of 1 June 2023, patent applicants will be able to obtain double protection for the same invention, via (i) a French national patent and (ii) a UP or an EP patent that has not been opted out²⁴. This new system is a major advance for patent applicants; it contrasts with the current situation, where a French patent cannot coexist with an EP patent validated in France, as the former ceases to have effect to the extent it covers the same invention as the EP patent²⁵, if the latter survives opposition proceedings, or at the end of the 9-month opposition period if no opposition is filed. Double patenting will allow patentees to retain protection by a national patent if the EP patent is revoked by the UPC, and thereby to reduce their risk of “putting all their eggs in the same basket”, so to speak.

²⁰ Preamble of the UPC-RoP, point 7.
²¹ Article 53 UPCA.
²² Article 33.4 UPCA.
²³ Article 33.3 UPCA.
²⁴ Please note that the rules of double protection will vary according to the country: see our previous newsletter on this subject available on this link.
²⁵ Article L. 614-13 of the French Intellectual Property Code, as currently in force.

Opt-out or no opt-out: how to choose ?

Although the UPC has many advantages, the fact that it is a new jurisdiction – whose multi-national judges have yet to build up a unified body of jurisprudence – may lead some EP patent proprietors and patent applicants to legitimately wonder whether it is appropriate to opt out, to “wait and see” and avoid being involved in the UPC’s “shakedown tests”.

However, it should be borne in mind that the UPC has a so-called “long arm jurisdiction”: any party can be sued before the UPC by other patentees, even if it has opted out each and every one of its own EP patents. Such a party would suffer the disadvantages of the UPC (reduced defence time compared to the claimant, unfamiliarity with the functioning of the Court), without any of the claimant-side advantages (injunction and pan-European damages within a judgment period of about one year).

Therefore, a reasoned choice should be preferred, on a case-by-case basis and considering all strategic parameters.

To facilitate this reflection, we provide below a non-exhaustive list of criteria that may weigh for or against opting out:

• The strategic value of the invention covered by the patent and the company’s litigation strategy
  If the patent application or patent covers a technology which is strategically important for the company, staying in the UPC system will allow to effectively defend this patent in case of infringement and to benefit from a ruling having effect in all UPC participating States, with higher damages for infringement. A positive ruling from the UPC could also have an indirect “domino effect” on the resolution of disputes in other jurisdictions.

• The strength or weakness of the patent or patent portfolio
  Patent proprietors or patent applicants may be tempted to opt out weak patents, i.e., patents whose validity they know could easily be challenged before the UPC. On the other hand, if they know that their patents are strong in terms of validity (especially if they have already survived litigation or opposition proceedings before the EPO), the risk of a central revocation before the UPC is lower, and opting out may not be relevant.

• The market position of the patent applicant or patent proprietor vis-à-vis its competitors
  Some patent proprietors may think that the safest solution is to opt out most or all the patents in their portfolio. Apart from the fact that this approach will require filing an opt-out whenever a new EP patent application is filed, it will be necessary to act quickly, because opting out is possible only if no action concerning the EP patent in question has already been brought before the UPC, including by a third party. If a patent is fragile and/or if its proprietor fears that one of his competitors will bring a revocation action before the UPC, he will have to make an application to opt out as soon as possible after the patent application is published, so that an action from a competitor before the UPC²⁶ cannot block the possibility of exercising an opt-out.

• On the other hand, proprietors who plan to opt out some or all of their patents and rely on the possibility of withdrawing the opt-out (i.e., opting in) just before bringing infringement proceedings before the UPC, should keep in mind the risk of being “locked-out”. Indeed, a competitor could thwart this strategy simply by initiating national proceedings²⁷ concerning the relevant patent(s) in any participating State prior to the withdrawal of the opt-out.

• In an opt-out has been made, if the patent proprietor intends to initiate an action before a national court because the infringement is confined to the territory of a single State, he will have to make sure to opt in beforehand, if he wants to avoid preventing himself from filing an action before the UPC later on in case transnational infringement is detected.

Whether or not to allow the UPC to have jurisdiction over a company’s patents will depend on the situation of the company, or even of each patent. A global strategic reflection with regard to the opt-out should be carried out now with your counsels, in order to be ready for the launch of the UPC.

How to prepare between now and 1 March 2023 ?

Patent applicants and patent proprietors should prepare now for the launch of the UPC. To this end, we recommend:

• Defining a strategy towards the opt-out, by choosing whether to stay in the UPC system or to leave it.

• In the event it is decided to opt out (and with the assistance of your counsel):
  • Defining the list of patents to be opted out.
  • Obtaining consent from all proprietors or applicants of the patents to be opted out, as they must all file the application to opt out.
  • Checking that they are all registered as patent proprietors (or patent applicants) in all European States where the patent is in force (or the patent application is filed).
  • If a license agreement exists on a patent to be opted out, reviewing the agreement for any applicable UPC and opt-out clauses, including whether consent from the licensee is required.
  • More generally, all contracts concerning EP patents (R&D contracts, consortium contracts, collaboration contracts, etc.) must be audited to examine how the UPC will impact them, and if necessary to amend them – to settle in advance questions such as filing a UP, double patenting, filing an opt-out or opt-in, initiating an action before a national jurisdiction or the UPC, etc.
• Considering filing a national patent (or keeping it in force) in addition to an EP or UP patent, to obtain double patent protection for the invention.

²⁶ See Article 32.1 UPCA – by bringing, for example, an action for revocation, an action for declaration of non-infringement, or an action for provisional and protective measures and injunctions.
²⁷ E.g., an action for declaration of non-infringement, an action for revocation, or an action for provisional and protective measures and injunctions; these may be brought even in respect of a EP patent application (Rule 5(6) UPC-RoP).

STÉPHANIE ROLLIN DE CHAMBONAS
Lawyer
stephanie.rollindechambonas@abello-ip.com

GUILLAUME DUBOS
Partner – Lawyer
Deputy Head of Litigation Department
guillaume.dubos@abello-ip.com

THOMAS LECONTE
European Patent Attorney
thomas.leconte@abello-ip.com