Guest blog: Will UPC lead to a rise in arbitration?

Last week I looked atthe UPC Agreement articles relating to court fees and speculated a little as to how they might translate into fee-levels, reaching the tentative conclusion that UPC court fees, in high value cases brought by big companies in particular, might be really quite high.

This week I follow up with a little more speculation on the impact of those fee levels, in particular on the choice of forum. If fees for a high value case brought by a big company are in the hundreds of thousands of euros and therefore broadly equivalent to the cost of an arbitration, then why not opt for an arbitration?

Consider the advantages in, say, the life sciences sector: arbitration is private, the patentee cannot lose its patent, the generic can win a sole (at least for the time being) licence. Usually an arbitration is held between parties to a contract containing an arbitration clause, but what is to stop a generic manufacturer writing to the patentee, as they should in any event to clear the path, suggesting a private arbitration? A patentee, if confident that privacy will be preserved, may well prefer that to the great unknown of the UPC.

The pharmaceutical industry has had its problems with the competition authorities and, while there is no question of pay-to-delay, there might be questions asked regarding the duty of a patentee whose patent has been “found to be invalid” by an arbitration panel. Is the patentee under a duty to disclose that finding to the Patent Office? This is the case in the USA (“When an award is made by an arbitrator, the patentee, his assignee or licensee shall give notice thereof in writing to the Director [of the Patent Office]” – 35 USC §294(d)) but there is no equivalent provision in the UK or at the EPO.

If a second generic manufacturer, noticing that a generic competitor is selling patented product X, started a revocation action in court then would the arbitration decision, evidence, and other documents be disclosable (whether in the UPC or in the English courts)? If I were advising the patentee then I would argue that the panel’s subjective opinion on the validity of the patent, decided under the particular rules of evidence of the arbitration, is not relevant to the objective question before the court. Equivalent documents from foreign court proceedings on a national designation of a patent are not usually held to be relevant unless there is a serious discrepancy in evidence, and arbitration proceedings should be treated no differently. Of course, matters are different in the US.

"The UPC will undoubtedly suffer teething problems with inexperienced judges, unpredictable procedure, a high risk of referrals to the CJEU (at least in the early years), wide scope for forum-shopping and the dreaded central revocation."

Turning to the electronics industry for a moment, my colleague David Barron tells me that if a standards-essential patent were found to be valid by an arbitration panel, one might expect (subject to the terms of reference of the panel) that panel to consider it of significant value. Would this then be the FRAND royalty rate for all existing and future licensees? Might a prospective licensee be considered unwilling in the competition law sense for failure to offer a high enough rate?

What if the panel determined a rate higher than that being paid by the licensee for equivalent technology? Might the licensee be accused of abusing its market power in paying less to other parties or in forcing such parties to go through the process of litigation, having agreed to arbitrate in an isolated instance?

So far, so old hat. Arbitration is now an option but almost no-one uses it in patent disputes unless they are contractually obliged to. High court fees are not going to change that, you might think. However, there are other advantages. The UPC will undoubtedly suffer teething problems with inexperienced judges, unpredictable procedure, a high risk of referrals to the CJEU (at least in the early years), wide scope for forum-shopping and the dreaded central revocation.

Each of these problems would be addressed by using arbitration: guaranteed experienced arbitrators, relatively predictable procedure, no referral to the CJEU, no forum shopping, no revocation … and all for a (maybe) similar price as a trial at the UPC.

Clearly, there are some things that arbitration cannot provide (saisie contrafaçon and seizures by Customs, for example) and some feel that arbitration lacks a bit of bite: there is little threat to the party who delays, prevaricates and refuses to co-operate. These drawbacks can be significant in bitter arguments following the breakdown of a prior relationship, but in the consensual (in the loosest possible sense of the word!) world of clear the path litigation, or in the SEP utopia of a willing licensor finding a willing licensee, they may well be less so.

"Under the law of unintended consequences, arbitration might be an unexpected beneficiary."

The risks of the UPC can be excluded at a stroke by opting out and litigating nationally, so why would a party arbitrate to avoid cost and uncertainty when it can retreat to the safety of national litigation? First, it is not yet certain that it will be possible to exclude the UPC by Article 83. Assume it is possible, then why wouldn’t a patentee simply opt out as soon as it receives the clear the path letter from the prospective defendant? Presumably the patent was opted-in for a reason, and that reasoning would have anticipated the threat of litigation. Perhaps the patentee wanted patent coverage in all contracting member states. Opting out, even in the event it wins the litigation, means that to maintain full coverage it must pay the renewal fees in all states for the remainder of the patent life.

No-one knows what the impact of the Unitary Patent and UPC will be, but it is sure to shake European patent litigation up and, under the law of unintended consequences, arbitration might be an unexpected beneficiary.

Tom Carver is a director in the IP department at Wragge Lawrence Graham & Co. The first part of this post is “How high will UPC fees be?”