It is time to think about UPC opt-out again: what opt-out does

The UPC is back on track

Now that Austria has approved the Protocol on the Provisional Application of the Unified Patent Court (UPC) Agreement, the provisional period of the UPC can begin. This is the final stage of preparations for the UPC and the new Unitary Patent and it keeps the UPC on track to open for the filing of its first case by the end of 2022, and if the UPC Preparatory Committee is correct, earlier than that.

The provisional period is expected to include a specific period prior to the opening of the court in which patentees can begin to opt-out patents from the UPC system. Details of the opt-out period are awaited, but earlier plans for opening the court in 2017 – which turned out to be a false start – suggest that opt-out may start three months before the court opens. Provided the patent in question has not been subject to UPC proceedings, opt-out will then be possible for a further seven years (subject to extension) – the "transitional period".

Why opt-out matters

There is no 'opt-in' to the UPC and so, without taking action to opt-out their European patents, patentees could find their patents disputed in the UPC. This means that the attention of patent owners now needs to return to the important question of whether they wish to allow some, or all, of their European patents to be enforceable in the UPC and/or potentially subject to a revocation action there; or, whether they instead wish to opt them out. 

When addressing this choice, there are three aspects to opt-out that need to be addressed: what opt-out does, the procedure for opting-out and, its strategic implications.  This article provides an overview of what opt-out does.

How it is achieved and its strategic implications

What opt-out does

Which countries are affected?

To understand opt-out, and the associated UPC transitional period, it is first necessary to look at the place that the UPC will take in the European patent system as a whole. This is because the UPC will not exist in isolation, but side-by-side with the existing national courts. In particular, as Figure 1 below shows, the national courts will fall into three categories, depending on their relationship with the UPC and the European Union (EU):

• national courts of the EU Member States contracted to the UPC ('Contracting Member States') (shown schematically by three dark green boxes). There will be 22 of these countries, assuming all of them ratify;
• courts of the EU Member States that have either not signed the UPC Agreement or have said they will not ratify it – although it may change, this is currently Spain, Poland, Hungary, the Czech Republic and Croatia (represented schematically by one light green box); and
• thirdly, national courts of the countries that are signatories to the European Patent Convention (EPC) but cannot join the UPC because they are not EU Member States (represented by one white box). Examples are the UK and Switzerland.
  
   

Figure 1. The place of the UPC in the European court system (appeal court not shown)

Unlike the other courts shown, the third type of court cannot refer matters to the Court of Justice (blue box). But all courts will, to a greater or lesser extent, take notice of decisions of the Boards of Appeal of the European Patent Office (dark grey box). For simplicity, the UPC Court of Appeal and the national appeal courts are not shown in Figure 1 above.

The UPC itself, although most easily thought of as a separate jurisdiction of its own, is actually a court of each and every Contracting Member State simultaneously. This is represented in Figure 1 above by a box in black outline which overlays the courts of the Contracting Member States. Opt-out and the transitional period are concerned with the inter-relationship between the UPC and the Contracting Member States' courts only.

What type of patents are affected?

When the UPC comes into force, it will be possible to request that newly granted European patents become 'European patents having unitary effect' (referred to as Unitary Patents). This means there will be three types of patent available in Europe, under the new system:

• Unitary Patents;
• European patents; and
• national patents (and in some countries utility rights).

Which of these patents can be litigated in which type of court in the new system?

Disputes concerning national patents will continue to be heard only in the national courts – this will not change in the new system. In contrast, Unitary Patents will only be actionable in the UPC, as regards matters within the UPC's 'exclusive' competence. This includes the key areas of revocation, enforcement (including injunctions) and non-infringement declarations (see our UPC Q&A). These two jurisdictions are represented in Figure 2 below. Here, the arrow at the top of the figure illustrates Unitary Patent actions taking place exclusively in the UPC over time. The broken-outline arrow at the bottom of Figure 2 below shows national patent actions taking place exclusively in the national courts over time.

Figure 2. Jurisdiction for Unitary and national patents in the new system.

By contrast to national patents and Unitary Patents, the jurisdiction in which European patent disputes are heard is determined by the rules on opt-out and the transitional period.

The transitional period: the effect of opt-out

All European patents will eventually be subject to the exclusive jurisdiction of the UPC. However, a period of adjustment – a transitional period – will operate first, in which patentees have some control over whether their patents are subject to potential actions in the UPC. This period will initially last for 7 years, although it may later be extended by a further seven years. Figure 3 below develops the picture of jurisdiction over time shown in Figure 2 above by adding European patents. During the transitional period, non-opted out European patents can be litigated in either the UPC forum (top, green arrow) or the national courts of their designation (bottom, green arrow). However, once the transitional period has expired (shown by the vertical dotted line) all disputes about matters within the UPC's exclusive competence concerning European patents must be started in the UPC and the UPC only. 

Actions already started in a national court must continue in the national court. Furthermore, if an action relating to a non-opted out patent has already been filed in the UPC, the opt-out is barred. There is also a right to withdraw an opt-out (discussed below).

Figure 3. Jurisdiction for European patent actions during and after the transitional period.

The effect of opt-out is to remove the choice of the UPC as a jurisdiction for European patents during the transitional period and for the rest of the life of the patent, together with any Supplementary Protection Certificate based on it (if any). This is shown in Figure 4 below. In this Figure, the light green arrow shows the effect of the opt-out on the jurisdiction in which a European patent must be litigated. On the left-hand side of the figure, the light green arrow descends from the UPC jurisdiction down to the national court jurisdiction, indicating that the opted-out patent can now only be litigated in the national court of its designation. In Figure 4 below, the opt-out is shown schematically as taking place halfway through the transitional period, but it could be exercised at any time from the first day of the court’s operation up until the expiry of the transitional period. After expiry of the transitional period, the opportunity to opt-out is lost.

Figure 4. The effect of opt-out on the jurisdiction of a European patent action.

The transitional period: the effect of withdrawal of opt-out

As mentioned above, one can first decide to opt-out and then withdraw the opt-out at a later stage. Figure 5 below illustrates the effect of withdrawal of the opt-out. Withdrawal takes the European patent concerned out of the exclusive jurisdiction of the national court of its designation and back within the dual competence of the UPC and national courts (if withdrawn prior to the expiry of the transitional period) or within the exclusive competence of the UPC (if withdrawn after the end of the transitional period). An opt-out can be withdrawn at ‘any time’: before or after the transitional period expires and at any time during the life of the patent or that of an SPC based upon it (if any). However, there is an important restriction on the ability to exercise the withdrawal: if a European patent is already the subject of litigation in a national court the withdrawal of the opt-out is not permitted. Such litigation must continue in the national court. As the matter of fact, the opt-out can also not be withdrawn after such litigation has concluded.

Figure 5. The effect of withdrawal of opt-out on the jurisdiction of a European patent action.

Opt-out: what happens to SPCs?

Opt-out automatically applies to an SPC that is based on an opted-out ‘basic patent in force’. After a European patent has already expired, the opt-out of the SPCs based on it is still achieved by opting-out the expired patent. SPCs are not currently available based on Unitary Patents, although the European Commission is considering how this might be achieved. However, if and when such SPCs become possible (either as unitary rights or an adaptation of current national rights, or both) it will not be possible for them to be opted-out of the UPC.

How it is achieved and its strategic implications