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THE UNIFIED PATENT SYSTEM

Today patents must be maintained and enforced separately in each country in the EU. There is no such thing as a single patent that is enforceable throughout the EU. In the future, however, inventors will have the choice of protecting their invention in up to 25 EU countries with a single unitary patent.

These unitary patents will be enforced exclusively in a new Unified Patent Court (UPC). The UPC will comprise:

  • a Court of First Instance
  • and a Court of Appeal.

The Court of First Instance will include a Central Division (located in Paris with additional sections in London and Munich) and various local and regional divisions throughout the EU. The Court of Appeal will be located in Luxembourg.

The new unitary patent system will provide valuable benefits, such as simplifying patent examination procedures and reducing the risk of divergent decisions among Member States.

But if in solving these difficulties it opens the doors for abuses in the system by unprincipled plaintiffs, it could be fatal for a small company.

The issue: there are unnecessary opportunities for abuses in the system.

Unlike national patents that must be litigated separately in the national courts of each country, unitary patents will be enforceable—and products effectively can be banned from a near-EU wide market—with a single court order. Given such immense power, however, it is important to limit, and where possible to eliminate, opportunities for abuse of the system by unprincipled plaintiffs. A group of organizations and individual companies have identified two major opportunities for abuse of the system.

The first opportunity for abuse is the so called “injunction gap”. The injunction gap is the gap of time during which the products of a company (the defendant) can be barred from the EU market despite a pending (unresolved) question about the patent’s validity. In the present German system, for example, this can last from 9 to 29 months!

Such a gap can arise if the Court of First Instance (e.g., the local or regional division) splits (i.e., bifurcates) the infringement decision and the validity decision so that they are decided by two different courts in two different countries for the same case.

SMEs cannot afford to have their product–often their only revenue source–removed from the market for multiple months while they litigate the validity of an asserted patent. A small company could go under long before the patent’s validity is determined.

The impact of the injunction gap is that unprincipled plaintiffs will be able to force many defendants, especially SMEs, to pay excessively high settlements (even on potentially invalid patents), diverting those precious resources from R&D and other critical uses.

The second opportunity for abuse is the lack of discretion and guidance on proportionality for injunctions. The latest draft of the UPC Rules of Procedure severely limits the judicial discretion to consider the individual facts of the case and to tailor injunctions accordingly.

The density of patents embodied in a single product today has reached staggering levels, with some products embodying tens, even hundreds, of thousands of patents. Such new densely-patented, multi-featured products are a relatively new entrant into our modern society and a new challenge for our patent systems.

Permitting even the most trivial of patents to bar far more significant products from the near EU-wide market can create tremendous business leverage on defendants, especially SMEs. In effect, although the patent itself may contribute only insignificantly to the entire product, by providing an injunction on the entire product, the patent holder essentially is credited with 100% of the product value. Thus, even trivial patents that contribute insubstantially to a product can exert tremendous business leverage on a company.

As with the injunction gap, this will permit unprincipled plaintiffs to force high royalties through settlements, royalties that far outstrip the actual value contributed by the patent.

The greatest risk is not that the UPC will be unfair but that its judges will be denied the chance to remedy any abuses – because the undue business leverage created by the system will force excessive settlements that remove the case from their hands. Indeed, only about 3% of U.S. patent cases make it to trial. Most of the success of U.S. patent trolls comes from the undue business leverage that exists in the U.S. system to force excessive settlements.

The Rules of Procedures of the UPC should endeavour to close all loopholes that unprincipled plaintiffs could exploit to force abusive settlements.

CEOs of European SME’s share their experience with Patent trolls

THE INJUNCTION GAP TIMELINE

RECOMMENDATIONS

  • Validity should be decided before or at the same time as infringement, or the remedy from the injunction decision should be stayed until after the pending validity issue has been decided.
  • Judges should have the discretion and direction to consider the proportional harm and fairness to the parties when deciding whether to grant injunctions

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