Patent implications of Brexit
The Forum in Munich kicked off with a light-hearted apology from Karl Barnfather of Withers & Rogers. “Please don’t direct your anger towards me for the Brexit vote,” he said. In his remarks Barnfather said, although the IP Federation cited its concerns, overall the UK patent community backs the UPC and that there are legal proceedings over whether Parliamentary approval is needed to trigger Article 50.
Margot Fröhlinger of the EPO gave a historical account of previous failed attempts to create a unitary patent system in the EU before 25 member states agreed in 2011 to proceed through the enhanced cooperation procedure. In a nutshell, they failed because of disagreement over language and the associated court system. Fröhlinger said the Brexit result was hugely disappointing, but hopes history won’t repeat itself because the system is nearly ready and, in her view, “very important” to the Single Market. She said: “There is hope that the system will not come to a halt. It will go ahead. There is too much support and too much investment.” To her mind, the question now is whether the system will go ahead with or without the UK. She said: “It’s now a political issue not a legal one because it is relatively easy to change an agreement which is not yet in force.”
The two key UPC Agreement provisions which require amendment are Article 89, to remove the requirement for UK ratification, and Article 7(2), which deals with the UK’s Central Division seat. She went on to explain how this solution may be achieved. The first step is for the other member states to convene a diplomatic meeting on the margins of an EU Summit or the Competitiveness Council meeting to discuss possible amendments. This must include the UK. In terms of agreement by member states, “only a qualified majority is needed”. But she expressed concerns over likely disagreements which will cause delay. “There is a risk that other member states will start throwing in their amendments.” In terms of seat, she said France, the Netherlands, Germany and Italy are all likely to stake a claim. Getting all of the amendments approved quickly would depend on the constitutions of member states, but if all goes well we shouldn’t expect years of delay. “Most member states will be able to do a simplified ratification,” she said, citing Denmark as an example where another referendum won’t be required. “So we could be looking at 6 to 9 months delay not 5 years.”
The expectation was that the system will start operation next year. With the uncertainty over the UK government’s Brexit policy and plans, “how long can other member states wait for the UK to make a decision?” That was a question put to the panel. “Member states shouldn’t wait too long. Perhaps a matter of months,” Fröhlinger responded. “If there is no sign of UK’s participation at the Competitiveness Council meeting this month or in November then member states should act quickly.” She added: “Germany’s ratification should go ahead to avoid giving bad signal to other countries.”
Fröhlinger envisages no major legal obstacle to the continued participation of the UK in the UPC after its exit, provided it accepts Chapter IV of the UPCA, and, moreover, other member states want the UK to be part of it. She takes comfort in the CJEU’s decision in challenge to the Unitary Patent Regulations. “The CJEU demonstrated extreme pragmatism,” she said, but then went on to warn that the CJEU’s Opinion 1/09, which dealt with the UPCA’s predecessor, is open to interpretation. “There are no guarantees in life so no one is sure if the CJEU will agree on the legality of UK’s participation if challenged,” she added. Fröhlinger also fears the risk of unravelling the compromises in the UPCA but questions if the CJEU will be “politically insensitive”. She believes the CJEU will give “its blessing” to the system again when called up.
Winfried Tilmann of Hogan Lovells, who is also a member of the UPC Preparatory Committee, presented his own analysis of the options open to the UK in order to participate in the system. One key legal difficulty is whether a non-EU member state can be party to the UPCA considering that referral to the CJEU is one way to ensure primacy of Union law under Chapter IV, Article 21. “The CJEU may say the UK will abide with this provision,” he argued. Tilmann also noted that there is no legal authority on whether a member state that has ratified the UPCA can still participate in the system after it has left the EU and it is unlikely that UPCA signatories will cancel the treaty. In his view, the easiest option is for the UK to ratify the UPCA while still an EU member. “The UK can be rather sure they’ll stay in the UPC if they ratify now.”
In summary, the panel was of the view that Brexit will delay the start of the UPC, but how long remains to be seen, and with certain amendments to extricate the UK from the legal framework the system can come into operation. There was consensus that the majority of the patent user community in Europe support the system.
In Paris, Stanislas Roux-Vaillard of Hogan Lovells emphasised that “We need ratification from the UK as things stand” while his London colleague Laura Whiting set out the “large spectrum of possible Brexits” being considered by the UK government – ranging from a renegotiation to a “full divorce”. Sonia Cooper of Microsoft’s Skype division said: “We were looking forward to the UPC. We would welcome a solution that includes UK participation. The UPC without the UK would be a less attractive proposition with the current fee structure.” But she said above all what was needed was clarity.
Litigation and enforcement strategies
Mark Ridgway of Allen & Overy started this session in Munich with a review of patent cases in the English courts which dealt with declaratory relief. One of such cases was Fujifilm v AbbVie, a High Court dispute concerning the drug Humira. According to Ridgway, the case proves that declaratory relief is a “powerful tool” available to those seeking to clear the way before launching a product, in this case a biosimilar version of Humira. There are still questions raised by this decision and we understand there is a pending appeal. Ridgway went on to review cases on disclosure, such as Illumina Inc & others v Premaitha Health and Positec v Husqvarna, which demonstrate how strict English courts are in restricting disclosure in patent disputes. Lastly, the extent to which English courts can exercise jurisdiction over foreign patents was seen in Rhodia v Molycorp where Mr Justice Arnold refused to grant the claimant’s application for an order to obtain evidence from the defendant to aid its infringement case in Germany.
Joachim Feldges of Allen & Overy said declaratory relief action is “more of an English thing”. “German judges don’t like this sort of relief,” he added. He presented recent cases in the German courts on second medical use patents (Swiss-type claims), one of which was on Pregabalin. On contributory patent infringement, the court’s view was that even the physician may not be excluded from liability. According to Feldges, these cases have had an impact on the way tenders have been worded. On FRAND cases, he said there is divergence in opinion between German courts on the interpretation CJEU’s guidance in Huawei v ZTE, especially on the level of discretion available to an SEP holder in terms of the amount of information it provides. Feldges also looked at the recent decision of the German Federal Court of Justice (X ZR 29/15 Pemetrexed) dealing with the doctrine of equivalents in patent infringement cases. The ruling generally confirms previous judgments but has its limits.
In Paris, David Por of Allen & Overy discussed the saisie procedure, saying that despite recent decisions that have raised the bar somewhat, “the threshold remains relatively low”. A carefully drafted application can be very powerful – getting broad information quickly, at one thousandth the cost of US discovery.
From an in-house perspective, George Moore of Sandoz wondered if the number of declaratory relief actions could have resulted in “the proliferation of divisionals at the EPO”. On second medical use patent cases, his view was that the regulatory systems in Europe are to blame. “Patent law won’t solve the problem,” he said. Solving the problem would require “tweaks in regulation and both sides of the industry coming together”. In his view, these multinational pharmaceutical patent litigation is “great advert for the UPC”. “The current situation is not ideal,” he added. On disclosure, Moore said it is “an expensive process”.
Anne Vincent of B Braun Melsungen advised those conducting multinational patent litigation to be consistent. “Be careful you don’t argue one way in one country and another in other countries,” she said, adding that you should also keep an eye on what the EPO is doing. In Paris, Robert Fitt of Mylan provided a generic company’s perspective, emphasising how prescribing systems vary from country to country, and predicting that the number of cases – and the possibility of different decisions – will increase.
IT and TMT focus
Graham Burnett-Hall of Marks & Clerk said he is sceptical the UK will ratify the UPCA. “I can’t see a political will to sign up to an agreement which says you must accept supremacy of Union law.” How do patent owners in the IT and TMT sectors view the UPC and Unitary Patent system? Burnett-Hall said overall the Unitary Patent will be a lot cheaper but this varies by industry. He believes the role of renewal service companies and their fees should be considered when dealing with Unitary Patent costs. “It will be interesting to see if they’ll keep their fees at the same level,” he noted.
Maarten Mooij of Nokia didn’t see industry decisions on using the system to be all about costs. In his view every jurisdiction has its own procedural benefits and there are patents which will have an impact on licensing revenues which some telecoms companies may which keep out of the UPC. He said companies won’t mind litigating in both the UPC and UK courts, adding that it will be strange if the UK courts ignored UPC case law. In terms of prosecution strategies post-Brexit, he thinks most in the telecoms industry will stay with the EPO and “there is no indication they’ll go national”.
Mooij also doesn’t foresee a “big change” in the activities of non-practising entities in Europe when (or if) the UPC starts. Ultimately, “it depends on the case law direction of the UPC”, he added. In Paris, Pete Wilson of BT and Adrien Renoult of Nokia said that decisions about using the Unitary Patent and/or opting out of the UPC involved various considerations, including costs (especially renewal costs), research locations and competitor activity.
Tim Hargreaves of Marks & Clerk said some companies from the Far East, especially in the electronics sector, are seeing positive changes which make Europe attractive in terms of filing. However, Brexit has generated enquiries on the legal position. Hargreaves hoped the UK government will safeguard the interests of research centres and universities in the UK so as to maintain innovative strength post-Brexit. He thought pharmaceutical companies are more likely to opt-out of the UPC while other sectors are more likely to stay in. On the Unitary Patent, he believed SMEs will find getting a single patent covering the EU countries beneficial and even a small difference in renewal fees will make a huge difference to those in the telecoms sector.
On patent drafting for new technologies and computer-related inventions, he said as a patent attorney you should look “10 years down the line” when drafting patents and put yourself in the shoes of a litigator. “Go through the thought process systematically and pick individual components of the product. Have a claim to the server, software and so on,” he explained. “Think if it could fall foul of patentability exclusions.” The good news for attorneys is that the terms used by patent offices in Europe and US are becoming similar.
The panel was of the view that the UK IPO and EPO’s position on computer-related inventions is much more predictable than other IP offices, but you must be careful with your drafting.
In Paris, Marks & Clerk partner Thomas Prock looked ahead to Industry 4.0 and the panellists discussed issues that are likely to affect patent law in the next 20 years, such as 3D printing and protecting data files. “Twenty years ago, they were trialling putting PCs on partners’ desks in law firms and wondered whether they would be used,” said Prock. Renoult said the toughest decision for patent professionals is “choosing the correct invention – which patent will you file or not?”
FRAND and SEPs
David Barron of Gowling WLG opened this session in Munich reminding the audience that most SEP cases in Europe are seen in Germany. Generally the licensing system works but there is a huge disconnect between court decisions and industry practice.
Clemens Heusch of Nokia said there are complexities in licensing patent portfolios on a global scale therefore each case should be tailored so one is not paying for a country where no patent exists.
Claudia Tapia of Ericsson believed the CJEU’s decision in Huawei v ZTE was clear on the criteria for FRAND negotiations because some often come to the table with the intention of delaying the whole process. “Both sides must work in good faith”, she said, but the difficulty is whether all courts will strictly follow it. Another difficulty, especially in automotive and telecoms sectors, is that an owner may not know where the patent will be implemented.
Matthias Schneider of Audi also agreed with Tapia on the CJEU’s decision. “It provides clear timing in terms of negotiations,” he said, and also feels there isn’t uniform application in Germany. He said it remains to be seen how the court will deal with a situation where the parties are unwilling to negotiate and that there should be guidance on how to calculate ‘good value’ security. Schneider argued that FRAND is complex and should be more than just royalty rate. “German courts are reluctant to define FRAND,” he said. He agreed with the view that you can involve a third party, for example an arbitrator, to determine what a FRAND offer is. He said some in the automotive sector don’t like the idea of basing royalty rate on the entire value of a product because it can cause delay, rather he prefers where this is done by specific component and on a global basis.
On submitting FRAND disputes to arbitration, the panel agreed the parties must be willing: “If you force it, it won’t work.” Panellists also said you need to select arbitrators who understand FRAND, patent law and business. One issue is that there is little guidance on how to define FRAND, in part due to the fact arbitration and licensing negotiations are confidential, which adds to costs because there are different ways to interpret it. “Frankly it would be good if we can have something public,” Schneider suggested. The other issue is that most companies won’t risk bringing all their patent portfolios to arbitration.
Michael Schneider of Gowling WLG said Huawei v ZTE is about willing licensors and licensees. “The CJEU’s decision validates German case law on SEPs,” he said. The recent decisions in Germany, he argued, will shift the litigation landscape. A global licence isn’t necessarily anti-FRAND unless, for example, it forces the implementer to take certain actions. In Paris, Alexandra Brodie of the firm’s UK office noted that the big Unwired Planet trial on FRAND issues is set for this autumn, provided it is not settled in the meantime while Orange’s Olivier Thirard added that French courts have not yet had the opportunity to determine FRAND rates, but that there is a framework to do so when the right case emerges.
Effective dispute resolution
Alex Wilson of Powell Gilbert asked whether having a judge with technical background may mean the judge will have “entrenched or strong views” on issues such as patentability.
“Avoiding litigation in the first place is good,” said Neil Trueman of Mundipharma International. He said there are ways to exchange ideas with your opponent. “It’s easy to be angry but rise over that. Think rationally and in commercial terms,” he advised. “Being tenacious as a litigator is part of it but see the other side’s viewpoint.”
Trueman said mediation has to be “delicately handled” especially if it is a court-based one then you need to consider whether it will be the same judge who will decide your case later. For those involved in multinational patent litigation, he warned that if you litigate in say Germany and it goes against you there then it may affect you elsewhere. His view was that you should go where you think you’re going to win based on what you know about that jurisdiction. You need the right team though.
The conversation moved to Peter Berg of Dräxlmaier who said getting into conflict is not the issue, it’s how you resolve it. The goal of senior management is to get the infringer off the market. The level of litigation in a sector depends on the product cycle and of course value of the patent. Berg said if you are going to use mediation then get a mediator who will ask the right questions because this is helpful down the line in terms of dispute resolution strategy.
For Berg, predictability, language, timing and fairness of judicial process are some of the important considerations when deciding on where to litigate. “Too many translations in communication can create issues,” he warned. “If you know a system well, then you have to play it. If there is uncertainty, then get patent advice and think twice.” He stressed the importance of getting a lead counsel who is experienced in coordinating multinational patent litigation.
The general view of the panel was that it doesn’t matter if a judge lacks knowledge in the technology at issue but it is important for the judge to have a technical background or the confidence to take on and understand the technology.
Tom Oliver of Powell Gilbert said he has noticed new market entrants in the telecoms sector and some patentees who are more interested in monetising their patents. He added that it is worth getting into negotiations early because you may end up with a global royalty rate. In terms of getting evidence for use in other jurisdictions, the UK is more difficult compared to jurisdictions like France or Belgium. Oliver advised against “micro-managing” cases when you’re playing the lead coordinating counsel role.
In Paris, a panel comprising Peter Damerell and David Lancaster of Powell Gilbert, Alesandra Cincott of Inserm Transfert and Masimin Gourcy of DS Smith discussed approaches to licensing and dispute resolution with and without the UPC, and also what the ideal IP court would look like. Gourcy provided some advice for outside counsel: “My in-house clients don’t care about the pure technical aspects of a law. They understand risks, costs and time but they don’t care about the legal aspects as such. Keep your legal background to yourself.”
Life sciences and pharma
The moderator for the session Dominic Adair of Bristows backed up his own apology, following the trend set by previous speakers from the UK, for the Brexit vote by showing a screenshot of his EU referendum voter card. He asked his fellow panellists about their views on the UPC.
George Moore of Sandoz said the UPC without the UK will still be attractive to the pharmaceutical sector. “Even though there are faults in the system it will be better than what we have now across Europe,” he argued. Moore didn’t believe the project should be abandoned simply because the UK isn’t participating. He agreed that the quality of judgments in England and Wales and its legal profession make it an attractive jurisdiction but questioned whether it’s worth “paying that extra money” just to litigate in the UK. He said this is not necessary in all cases but understands why some may decide to get a UK decision and then take it elsewhere. “No one litigates in the UK for fun,” he noted.
Cost is going to be a key factor when deciding who to instruct when, or if, the UPC starts. “European rates are much lower than London’s,” he said. Clients will decide how to run their cases. “We may want to staff it with different people from different countries and it may involve a UK patent litigator and/or patent attorneys and lawyers from other countries.” He said it will be interesting to see if London can carve out a niche for itself in patent litigation when the system is up and running, but doesn't feel the UPC would take away the advantages of EPO oppositions.
Cordula Schumacher of Arnold Ruess reviewed the pros and cons of litigating in the UPC, EPO and national courts. On timing, she said, “it remains to be seen if UPC will deliver in 12 months”. Schumacher didn’t see any clear advantage on the issue of legal predictability.
In Paris, Gavin Lawson of Gilead Sciences said that the UPC without the UK might still be useful for the industry. Without discovery, it might be cheaper and tightly controlled cross-examination can be useful in getting to the truth. In a show of hands, a majority of the audience agreed. Charlotte Retzler of Ipsen Pharma said: “The UPC will not be initially over-used by pharma, but once we know abut quality of judges we may use it more. Once established, I think the court will be attractive.”
Katie Hutchinson of Bristows said parties will be able to get disclosure in the UPC but on an issue-by-issue basis. She believes owners will “opt out their crown jewel patents in the early stages” and that UK, outside the system, may still be able to influence UPC case law. The English courts are already working towards more flexibility and shorter, faster trials.
Adair added: “The UK courts may decide to pull its socks up and say we’ll deliver a timely, reasoned decision which you can take elsewhere.” Adair reminded the audience that UK patent attorneys and UK lawyers who are also qualified in Ireland can litigate in the UPC.
Hutchinson said the SPC regime in the UK will depend on its relationship with the EU but, in agreement with Adair, added that the UK has the opportunity to shape its own SPC legislation. For example, the UK could grant longer SPCs and add medical devices to the regime.
Obtaining evidence of an infringement
The panellists for the session on obtaining evidence in Munich were Caroline Casalonga and Gérard Dossmann of Casalonga and Cyrille Sevin of Airbus. Casalonga and Dossmann presented case studies on search and seizure (saisie-contrefaçon) orders in France, one of which involved the American Embassy and an alleged infringer who was reluctant to accept the court order. The alleged infringer ended up accepting it after they were convinced that refusal would be bad for their image.
Casalonga and Dossmann explained that there is a duty to produce evidence in the UPC (Rule 172 of the Rules of Procedure). You can provide evidence how you want, they argued, and there is a strong burden on the claimant. Casalonga advised that evidence should be prepared in advance considering the timeline for UPC proceedings is 12 months.
Unlike in France, it is uncertain if search and seizure procedure can be done ex parte in the UPC. In any case, Casalonga advised that it would be best to ask the court for two orders – to inspect and to preserve evidence – and this can be ordered before or during an action in the UPC. She said the court will consider the defendant’s interests before granting such an order; for example the court may ask for payment of security into court.
According to Cyrille Sevin of Airbus, major players in the aircraft manufacturing industry don’t often litigate against each other: “We try to avoid litigation at all costs.” Sevin also has experience of search and seizure. “You’re not allowed to make mistakes in search and seizure as it could cost you millions of euros. Make sure you get the right order,” he warned.
In France, the bailiff is assisted by the patent attorney of the claimant. In Dossmann’s experience, there are special circumstances in which you may need others involved, for example: an IT specialist, a locksmith or the police. In one of the orders he handled they discovered paperwork with instructions on how to manufacture the medicine in question. “That’s evidence for infringement,” he said.
Judge Sam Granata of the Antwerp Commercial Court took part in the discussion in Paris.
Alternatives to court proceedings
Heike Wollgast of WIPO Arbitration and Mediation Centre presented some statistics on the Centre in Munich. Patent disputes account for 30% of the Centre’s caseload. The Centre has also introduced changes recently including the ability to unilaterally request for mediation (Article 4 of the Mediation Rules). Alternative dispute resolution (ADR) processes such as arbitration and mediation allow for flexibility and party autonomy, among other things. “Collaboration between parties is important,” she said. Joachim Feldges of Allen & Overy testified that WIPO’s Arbitration and Mediation Centre is cheaper than other institutions he has used.
Clemens Heusch of Nokia said sometimes it is difficult to agree to arbitrate but it is particularly useful where, for example, you’ve accepted to pay licence fees over a large patent portfolio and all you’re going to arbitration for is to decide how much. He warned the audience to beware of parties who try to use mediation as a delaying tactic and that arbitration can be very expensive. Unlike a court, “arbitrators have the tendency to make everyone happy” – something that can lead to a bad compromise, says Heusch. This is why picking the right arbitrator is very important. Experienced ones are extremely diligent to avoid an award being lifted by a court. This is particularly so in FRAND cases where you don’t want antitrust law to step in. Technical ability isn’t necessarily important. Heusch suggested that someone with a background in for example economics may be best suited for an arbitration involving several patents where you need a commercial decision.
According to the panel, awareness among senior level management and best practices in ADR among practitioners are important but the principle of confidentiality is an obstacle. “It’s a conflict we can’t really solve,” says Heusch. On the other hand, confidentiality as well as procedural flexibilities make trade secret disputes most suitable for arbitration. According to Heusch, this type of dispute is very difficult to litigate in court.
The panellists agreed that the finality of arbitral awards is something that makes arbitration very attractive because no one wants a situation where the award can be appealed. There was a question on whether third party intervention is common in arbitration. None of the panellists had any experience on this but Heusch said a supplier can help in the background during arbitration instead of being involved.
In Paris, Pauline Debré, Julia Schönbohm and Yohan Liyanage of Linklaters and Ben Ostapuk of Intel compared the merits of arbitration and mediation, and introduced the “Eldorado” of investment treaty arbitration, citing recent cases between Eli Lilly and Canada and various tobacco cases (such as Philip Morris v Australia). But they cautioned that parties cannot assume that just because they can bring a case it will necessarily be successful.
A US perspective
In Paris, Edward Kelly of Ropes & Gray and Bruce Elder of Integrated Device Technology presented the PTAB, and compared it with European practice. “We’ve moved to a prove-your-patent-is-valid system,” said Kelly, describing it as bifurcation. “It is growing in interest and validity will be decided more and more at the PTO rather than in the courts.”
The panellists agreed that the PTAB and recent Supreme Court decisions had been driven by the need to tackle the perceived problem of patent trolls, and had done so partly by removing the incentive of contingency fees. A clear majority of defendants now challenge patents asserted against them, said Elder: “It’s now almost automatic you will challenge patents asserted against you. The odds are really high – that’s a radical change.”
Kelly added that PTAB proceedings would feel familiar to European practitioners: “They’re like a small bench trial or EPO opposition but a little bit more formal.”
All the panellists spoke in their personal capacity and their views do not reflect that of their companies. You can read all the views from both events on Twitter by searching #EUPATENT16.