It is time to think about UPC opt-out again: how it is achieved and its strategic implications

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 how opt-out is achieved and its strategic implications.

Read 'What opt-out does'

How opt-out is achieved

Opt-out procedure

In order to exercise the opt-out of a European patent or application from the exclusive competence of the UPC, together with any SPC granted on the basis of it, an application must be lodged with the UPC Registry. The application must contain the details of the patent, plus any SPC that is granted on the basis of it (if any), or the patent application in question. These details include the numbers and designated states of the patents. The name of the proprietors or applicants for the patent (and the holders of any SPC – if any) must also be included, together with their postal and electronic addresses. There is no fee payable. If all the above requirements are satisfied, the opt-out will be effective from the date that it is entered in the Register.

The sunrise period

As stated in the introduction, a provisional operation period for the UPC has now commenced that will lead up to the opening of the court. In addition to allowing certain steps to be taken in preparation for the court to enter fully into force, during the provisional period, and at a currently unspecified date, it will be possible to start recording opt-outs of European patents in the UPC Registry. This period therefore enables a patent owner to remove European patents from the jurisdiction of the UPC before a third party is able to lodge an action against them (such as a revocation or declaration of non-infringement).

Whose decision is it to opt-out?

The patent proprietor or applicant – and where there is more than one proprietor or applicant of a granted patent or application, respectively, all of them – must lodge the application for opt-out. The practical effect of this provision is that co-owners of a patent must agree whether they wish that patent to be opted-out. A declaration of proprietorship is necessary in the absence of a record of the proprietor in the relevant national register or, in respect of applicants, the European patent register.

An application to opt-out must be made in respect of all of the Contracting Member States to the UPC (Read our 'What opt-out does' article) for which the European patent is designated. As a consequence, agreement must be reached between different proprietors in circumstances where one or more designations of a European patent have been assigned to them. This includes the proprietors of designations of the patent in Contracting Member States that have not ratified the UPC Agreement at the time of the opt-out.

There is no apparent intention in the Rules that an exclusive licensee is to be included within the meaning of 'proprietor' for the purpose of opt-out. Therefore, an exclusive licensee is not required to provide consent to the opt-out of the European patent licensed.  An exclusive licensee that wants the right to consent to the opt-out of a European patent to which they are licensed must therefore negotiate this right in the terms of the licence.

If the holder of the SPC is different to the proprietor of the patent on which it is based, both the holder and the patent proprietor must lodge the Application to opt-out. If an SPC is granted after an application has been lodged, the holder of the SPC must notify the Registry of the same details that would be required of the patent proprietor.

The strategic implications

Should a patentee exercise their right to opt-out European patents from the UPC? This is of course a strategic question, which requires careful consideration of the consequences of opt-out for all European patents in a portfolio. There are a number of issues to bear in mind. The most significant of these is discussed below:

Enforcement reward v revocation risk

A successful revocation action, or revocation counterclaim to an infringement action, will have effect in all Contracting Member States that have ratified the UPC system. At the time the court comes into operation, this may not be all of the Contracting Member States (indeed, as we say above, some of these have already said they will not ratify at any time). However, as more countries ratify the UPC Agreement, the scope of the effect of UPC decisions will become accordingly greater. Likewise, for infringement actions (including preliminary injunctions), enforcement decisions may not be effective in all Contracting Member States in the early operating life of the UPC. 

Even with these limitations in the early stages of the UPC’s operation, however, the scope of the court's jurisdiction is extensive compared to the current system of national court decisions, which are by its nature limited to national territories only. As a consequence, the powerful enforcement opportunities in the UPC have to be balanced with the risk of simultaneous revocation actions in a large number of countries.

Decisions on opt-out will therefore turn on a combination of perceived strength of patents and their commercial value. In other words, the patentee will want to be confident that if they are going to enforce in one forum, that they can also uphold validity or at least that the risks are in their favour in said forum. One option to hedge risk would be to use divisional patents based on pending applications to broaden the flexibility for opting out some patents while keeping others in the UPC forum. This may also enable a patentee to benefit from perceived advantages in certain national approaches to procedure and law compared to the UPC.

SEP/FRAND cases

In the telecoms and electronics field, some SEP owners may wonder whether litigating in the UPC is necessary when the UK courts can provide a global licence remedy and the UPC can presumably (being apparently without the necessary declaratory powers) only provide a "yes" or "no" answer as to whether an offer is FRAND compliant under competition law. However, one strategy may be to seek to enforce SEPs in both the UPC and UK so that, if a FRAND offer is rejected by the UPC, compliant licence terms can then be determined by the UK court. 

Non-practising SEP holders may want to keep their patents in the UPC, in order to benefit from the potential to enforce against all 22 countries involved. In these cases, the potential risk of a UPC revocation may be worth taking.

Fees and costs

A UPC action may in some cases be bifurcated between infringement and revocation and, despite a number of consolidation provisions, there will be circumstances in which patentees have to enforce the same patent in separate proceedings against different defendants. Nonetheless, an action in the UPC, either to enforce a patent or to revoke one, prevents the need for parallel actions between the same parties in the national courts (although a patentee may still need to litigate outside their country of domicile). Consequently, the potential cost of a UPC action must be weighed against not only the court fees that might be payable in several national courts, but also the costs of paying the legal teams running and managing the parallel national actions. For European patent families covering several commercially very significant countries, the benefits in time and cost of using the UPC may be obvious. For other patents the cost benefits alone may not be so clear.

What opt-out does