Guest blog: Will UPC lead to a rise in arbitration?
Managing IP is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2024

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

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

In the second part of his post on the UPC, Tom Carver asks whether arbitration will be an attractive option once the new court system comes into effect

Tom Carver

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?

Life science advantages

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.

Electronics industry

"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.

Arbitration versus national litigation

"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?

more from across site and ros bottom lb

More from across our site

A 36-member team from Zhong Lun Law Firm, including six partners, will join the newly formed East IP Group
The Delhi High Court sided with Ericsson against Indian smartphone maker Lava, bringing the companies' nine-year dispute to a close
We provide a rundown of Managing IP’s news and analysis from the week, and review what’s been happening elsewhere in IP
Tennessee has passed the ELVIS Act, a law that fights against AI models that mimic the voice and likeness of music artists
Rob Stien, chief communications and public policy officer at InterDigital, says the EU has forgotten innovators while trying to solve an issue that doesn’t exist
As Australia’s Qantm IP leans towards being acquired by a private equity company, sources discuss what it could mean for IP firms
Law firms that are conscious of their role in society are more likely to win work, according to a survey of over 23,000 in-house professionals
Nghiem Xuan Bac Pham, managing partner of Vision & Associates, discusses opportunities created by the US-China rift as well as profitability issues facing IP practices
Douglas Leite and two of his colleagues were intrigued by Bhering Advogados’s mission to grow its patent litigation practice
Each week Managing IP speaks to a different IP practitioner about their life and career
Gift this article