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UPC: businesses hesitant to litigate in untested court

Counsel from pharmaceutical, agro-chemical and telecoms companies say that a lack of established rulings and a new structure will make them hesitant to use a newly-emerged Unified Patent Court, should it come into being

Corporate uncertainty around how any recently-established Unified Patent Court would behave could stall litigation applications, according to in-house counsel at pharmaceutical, agro-chemical and telecoms companies.    

Sources explain that Europe’s harmonised-patent project will inevitably lack a body of established case law should it ever become a reality; and no one wants to be the court’s guinea pig and risk an unfavourable ruling.

“We don’t know how the courts will behave and where the courts will draw the line in decision-making,” says a senior patent director at pharmaceuticals company. “There is just not enough information to know with certainty how the cases will play out.”

Under the rules of the UPC, member states will have a seven-year grace period when they can opt in their patents for unitary protection. The feeling among businesses, particularly in pharma industry, is that until a pattern of behaviour is established, it is too risky to throw blockbuster drug patents at the mercy of the court.

Jonathan Stroud, chief IP counsel at patent-troll combatant Unified Patents in Washington DC, says: “If you think about it from a rational economic model, pharma companies are putting their earnings into one central body, and the risk that their patent is found invalid is too great.

“Such a finding would result in enormous disruption of their businesses.”

The risk of pan-European revocation gives those within the pharma industry cause for concern.

The pharma senior director adds: “In my field, people will continue to opt out patents where they are at risk of invalidation across Europe.

“Revocation is a concern for innovators. We have fewer patents but they have high value. The uncertainty might be why some pharma companies keep their crown jewel patents out of the system for a while.”

The head of patents for a generics company says that until the UPC has time to mature, she probably won’t throw her chances of receiving a beneficial ruling at the mercy of the courts either.

“We are all talking about the UPC constantly and there are lots of good esoteric debates to be had, but until it is here, there is [still] just so much uncertainty. We just don’t know.”

Even if a lower court establishes a pattern of issuing pro-patent rulings, they could be overturned by an under-tested appeals court.

“There is the risk of losing on appeal if the courts are very pro-patent. It all really depends on how these courts will behave,” says the senior director.

How the different divisional courts will behave within the UPC is also a concern for some sources. An industry source tells Patent Strategy that too much competition for business between divisional courts emerge as a flaw in the system.

He says that if one court were to become very pro-patentee, it could lead to a skewed system with everyone rushing to the same regional division.

“When I heard that the UPC courts were to be set up to encourage competition between different divisions, I thought that was an utterly crazy decision,” he says.

However, Clemens Heusch, head of European litigation at Nokia in Germany, argues that this set up is not very different from the current European system. “We already have to go shopping for where we decide to litigate. I am not so afraid of the UPC court system because I am convinced that the cases will go to the most experienced courts, and it does nothing to have a ruling that is overturned on appeal,” he says.

Testing the waters

To give litigators more faith in the system, the UPC will initially rely on previous rulings from national courts, according to sources.

Heusch says: “The lack of established case law both does and does not worry me. From what I understand, the UPC will rely on cases developed over decades and use these to come to decisions about rulings and procedures.”

One way to establish case law and test for the UPC’s future rulings is to throw less valuable patents at the court and see how it rules. The goal for litigators is to observe patterns of behaviour using patents that won’t disrupt their business models.

“Perhaps it makes sense if you’re not too confident about how the courts will work to throw a claim at it and see what happens,” says the generics head of patents. “Maybe you could get lucky and get a good decision.”

While the risk of having a patent knocked out in a trans-European court is concerning, a patent could become more valuable if it is tried and tested in a central court.

“If a patent survives litigation, it becomes indestructible, which makes it more valuable,” says Stroud at Unified Patents. “Right now, you could have 10 patents spread across Europe that are worth the value of a single US patent. Those will become much more valuable as a post-litigation unitary patent.”

Patent litigators currently have to worry about securing favourable validity rulings in multiple jurisdictions across Europe. The IP director at an agro-chemical company says one advantage of the UPC is that one court alone would set the standard.

“We will bring cases before the UPC on a case by case basis, but we are very much in favour of the UPC system,” he says. “It will be a big step forward for validity and scope of protection. Right now, our patents come out of the EPO, and if the UPC finds these patents valid, our risk becomes more manageable.”

Cost saving seduction

Sources say that initial litigation hesitation won’t last long because businesses stand to save so much money by litigating in Europe in one place rather than in multiple courts across the bloc.

Pharmaceutical companies, which usually litigate in many countries at one time, could find the cost-savings of litigating once particularly attractive.

“It is hugely expensive to litigate across Europe,” says the pharma senior director. “The UPC would reduce our costs and provide a financial incentive if we wanted protection everywhere.”

With so much riding on one central patent to a high earning blockbuster drug, some pharma companies believe the savings do not outweigh the risks of using the central court.

The head of patents for a pharma generic company says: “If you know or suspect you won’t be happy with the decision, who really cares about the money? From a general standpoint, if you are talking about big commercial results, the cost savings shouldn’t be taken into account unless you are sure you’ll get the right decision.”

Whether companies use the UPC for litigation will also depend on how many countries in which they need a ruling, and whether or not they believe the UPC will be favourable to their case.

Heusch at Nokia comments: “Money is important, but a decision to use the court would also depend on where you want to litigate. For us, we usually litigate in only one country so the UPC might not always be so useful.”

Translation costs from litigating across Europe are another cost-saving advantage of litigating with the UPC. “I know it sounds silly but when you have 10 or 20 patents in different jurisdictions the translation costs can be astronomical,” comments Stroud at Unified Patents. “You might have a portfolio of 100 patents. Imagine you multiply that out for prosecution budgets, but with the UPC you can get one type of protection with just one language.”

Wait and see

Concerns around new patent institutions are not unprecedented in Europe. The agro-chemistry IP director points out that everyone had concerns about the EPO before it came to fruition.

“Nobody knows how the UPC is going to work. When the EPO started operating there were the same concerns, but I would say the EPO is a big success. We might expect the same from the UPC.”

Once the UPC becomes established, it will take some time for it to get past its growing pains and mature.

For the moment, however, the UPC only exists on sheets of paper floating around somewhere in the dungeon of the German Constitutional Court anxiously waiting to see the light of day.

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