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Opt-Out from the UPC

One of the objectives of the Unified Patent Court (UPC) Agreement was to establish a court system for all litigation involving a European Patent in the participating states. However, Article 83 of the UPC provides a transitional period during which patent owners will be able to “opt-out” of the UPC with respect to conventional European Patents, but not with respect to a Unitary Patent (UP). A party who opts-out for a patent may later opt-in. There will be no fee to opt-out or opt-in, contrary to an earlier proposal. The transitional period will be seven years; however, the UPC Administrative Committee may extend that period up to an additional seven years.

Patent applicants who wish to avoid the UPC after the transitional period should consider filing national patent applications rather than European applications.


The Opt-Out Procedure

Articles 10 and 83 UPCA, and Articles 22-24 of the annexed Statute, provide that the UPC will maintain a Registry. Owners of conventional European Patents, both those now in force and those validated in the future, will be able to file opt-out requests with the Registry. Once an opt-out statement is filed, the UPC will not have jurisdiction over the patent, and it can only be enforced and attacked through national procedures. Article 83 also permits a European Patent owner to later withdraw its opt-out (i.e. opt-in), as discussed further below.

Pursuant to a February 25, 2016 announcement by the Preparatory Committee, there will be no official fee will be charged to opt-out or opt-in.

Pursuant to a Protocol announced October 1, 2015, patent owners will be able to file opt-out demands within a period of approximately three to four months before the UPC opens. That could avoid the possibility of an invalidation or noninfringement proceeding being filed in the UPC before the patent owner can opt-out. (The earlier proposal that the UPC would initially delegate to the EPO the task of maintaining the opt-out registry has been cancelled).

Therefore, in order to opt-out of the UPC:

  1. Owners of European Patents granted before the UP system starts, or who receive a mention of grant issued before that time, will file an opt-out request at the UPC; and
  2. Owners of European Patent applications who receive a mention of grant issued by the EPO after the UP system starts will need to validate the EP as national patents (not as a UP), and file an opt-out demand . That could avoid the possibility of an invalidation or noninfringement proceeding being filed in the UPC before the patent owner can opt-out.

It will be possible to withdraw a UPC opt-out request (“opt-in”) after opting out. Therefore, some persons have suggested a tactic of opting out as soon as practical and then-if the patent owner wishes to enforce a conventional EP in the UPC-opt-in immediately before filing a Complaint. However, that procedure would only offer a head start and forum selection advantage. Once an infringement action is filed in the UPC, the defendant can raise invalidity and noninfringement defenses and counterclaims in that court.

Potential Effects of Article 83

Some potential effects of Article 83, providing for opt-out during the transitional period, have been under discussion in interested groups during 2013-2015. The two principal questions have been:

1. Should an opt-out be effective only for the transitional period or continues for the life of the patent? The majority opinion is that it seems fairly clear from Article 83 itself that opt-out for the life of the patent is intended. That opinion has been adopted in the FAQ part of the Preparatory Committee’s website here. An alternative view is based on the fact that the opt-out is a part of transitional provisions and, therefore, should only have effect in the transitional period. The issue will have to be resolved by the courts.

2. What law should be applied in national courts in cases involving a patent opted-out from the UPC? Should those courts apply the law specified for application by the UPC in the UPC Agreement? Should the UPC and national courts apply the only same substantive law and, if so, which provisions are substantive and which are procedural?

On 29 January 2014, the UPC Preparatory Committee issued an Interpretative Note on “Consequences of the application of Article 83 UPCA” (copy at that date here). It reached the conclusion that if an opt-out is in effect “(or during the transitional period the case is brought before a national court), the [UPC] Agreement no longer applies to the application for a European patent, the European patent or the Supplementary Protection Certificate concerned. As a consequence the competent national court would have to apply the applicable national law” (emphasis added). That Note, however, is not binding and there is considerable disagreement among commentators about its conclusion. Some commentators are urging harmonization of national laws with the UPC Agreement. Probably, we will simply have to wait and see how these issues are decided.

Deciding Whether or Not to Opt-Out

There are a number of factors to be considered in deciding whether or not to validate European Patents as Unitary Patents, and whether or not to opt-out of the UPC for conventional European Patents. Patent owners are likely to apply a cost-benefit analysis. Some of the principal factors now under discussion, including costs, and fears of poor quality judges, unfamiliar rules and procedures and central attack are discussed in the article here and below.

Costs

In order to opt-out of the UPC after the UP system comes into effect, the patent owner will have to give up some of the advantages of a Unitary Patent. In particular, the owner will have to give up the ability to obtain patent protection for 13 or more participating states at a lower cost and with less maintenance complications than would be possible for a smaller number of those states using the conventional route of validation as national patents. Of course, as discussed on our Costs page, many owners do not pay for broad coverage now and may continue that practice in the future.

Judges

During the negotiations leading to the UPC Agreement, fears were expressed concerning the quality of judges, especially judges from smaller states who may have little patent litigation experience.

That type of fear is not new. We heard similar expressions of fear about EPO and the OHIM examiners before those offices opened, but the high quality in those offices quickly became apparent and those fears faded away.

The UPC drafters were very much aware of the need to have quality, experienced judges on the UPC from the very beginning. As a result, the UPC system practically guarantees high quality judges. Judicial panels in the local and regional divisions in smaller states will only have one local judge. A judicial training center is being established. But most importantly, for several reasons, the UPC is attracting highly qualified persons to be judges. Over 1000 persons have applied for a position as a legally- or technically-qualified judge. Perhaps, the first reason is the prestige of being an EU judge. The UPC judges’ salaries will be significantly higher than those of most national judges. At least in the beginning, many UPC judges will work in the UPC on a part-time basis, and can continue to work the rest of the time in a National court.

Unfamiliar Rules & Procedures

At least some of the fears concerning lack of familiarity with the UPC rules and procedures are analogous to the fears concerning judges. In the beginning, judges and professional representatives will have to learn new rules and procedures. It may be harder for a professional representative to advise concerning the UPC rules and procedures as compared with advising about those of his or her national court.

However, that problem is no more difficult than that of comparing EU national court rules and procedures today, and many professionals will very quickly develop UPC expertise.

From a patent owner’s perspective, the ability to focus on a single set of rules and procedures in the UPC is likely to prove advantageous. An analogous example is trademark litigation in the United States. Although both the federal and state courts have subject matter jurisdiction over trademark litigation, most of that litigation is in the federal courts, where the same federal rules of procedure and evidence are applicable.

As noted above, in the discussion of Potential Effects of Article 83, there are also questions of what law will be applied by the national courts in cases involving opted-out European patents, which may take some time to resolve.

Central Attack

The possibility of “Central Attack,” a single proceeding in which a patent can be attacked for multiple jurisdictions, is always raised when transnational IP proceedings are proposed. The transitional UPC opt-out procedure is a way of avoiding Central Attacks, other than an opposition in the EPO in the nine months following grant of a European Patent.

Objections based on the potential for “Central Attack” are not new. Similar objections were raised before the EPO and OHIM (the EU community trademark office) were established; however, those objections have had little effect in deterring use of those offices.

As a practical matter, harmonization of IP laws in the EU and increasing communication between European IP judges have reduced the likelihood of different results with respect to the same European Patent in different EU states. For those reasons and because of the cost of multiple litigations, fear of Central Attack probably will not be a significant consideration for most patent owners.

For further discussion, see our Costs page here.

Updated March 14, 2016.