UPC opt-out: "Should I stay or should I go?"

This song of The Clash ultimately starts to play in our heads when we consider the most important task for patent owners in the next months: To evaluate your patent portfolio and make your strategic decision which patents to opt out from the UPC system and which patents to keep in the system. Otherwise, the UPC can hit companies out of the blue, for example in the form of an invalidity action with consequences for the entire territory of the UPC jurisdiction. In the following we answer the most striking questions on the opt-out:

What is opt-out?

From the time of entry into force of the UPCA, the UPC will have jurisdiction for unitary patents (UP) as well as for European patents (EP). However, Art. 83 (1) UPCA contains a transitional provision for the European patents, which makes it possible to bring proceedings concerning EPs before the national courts in parallel during a transitional period of seven years from the entry into force of the UPCA. During this transitional period, EPs can also be withdrawn from the jurisdiction of the EPC with a special application - this is the opt-out. UPs must be litigated in the UPC and cannot be opted out.

The effect of opt-out is to give the national courts exclusive jurisdiction for each respective national validation of a classical EP until expiry just as it would have been without the UPC. The opt-out may be withdrawn under certain circumstances at a later date (“opt-in”). The effect of the withdrawal of an opt-out is to take the Classical EP back to the UPC system.

The jurisdiction of the UPC is not limited to patents granted after the entry into force of the UPCA. It also covers previously granted EPs with effect for the states in which the UPCA has entered into force. Hence, the patent proprietor should review his entire portfolio of European patents to determine whether he wishes to exclude the UPC jurisdiction by opting out of existing EPs.

What about supplementary protection certificates (SPCs)?

The application to opt out extends to all SPCs based on the European patent. For SPCs already granted at the date of the opt out application, the patentee and the SPC holder (if different from each other) have to lodge the application to opt out together. For SPCs granted after lodging the opt out application, the opt out takes effect automatically when the SPCs are granted. SPCs based on unitary patents cannot be opted out.

The UPCA does not provide an SPC with unitary effect and there are currently no provisions on a unitary SPC. However, the European Commission is aware of this gap and is working on linking unitary patent protection and SPC legislation. It recently started a call for opinions on the unitary SPC. So, a unitary SPC will certainly come in the future.

When is an opt-out not possible anymore?

An opt-out is barred if an action has already been filed before the UPC in relation to a classical EP. Withdrawal of an opt-out (opt in) is barred if an action in relation to a previously opted out EP has already been filed before a national court. These bars continue even after the respective litigation has been concluded.

It is therefore very important to be clear about the opt out strategy before the start of the UPC. By filing a claim with the UPC, a potential plaintiff can forever exclude the possibility of opt out for the EP holder. In order to prevent this, it will be possible to declare an opt out for the EPs already during the "sunrise period" a few months before the start of the UPC.

Who can opt out?

The owner of a granted patent or the applicant for a published application for a European patent must file the opt out with the Registry. If a patent belongs to two or more proprietors or applicants, they must all file the application, which means they must all consent.

In particular, licensors and licensees, especially in the case of exclusive licence agreements, should be sensitised and consider supplementary agreements. This is because the patent holder can theoretically declare an opt out without the licensee's consent. This could be considered as inappropriate as in exclusive licensing agreements the licensee takes over the enforcement of the rights and should have a say in the choice of jurisdiction. Nevertheless, such assessment depends from the scope of the license – whether it covers the full UPC territory or just a part of it – and the law applicable to the license agreement. However, once the opt-out is declared by the owner, it is valid.

How to declare opt out?

The declaration of opt out and also of opt in shall be made to the Registry of the EPC and shall be entered in the register of the court. The opt out declaration will be possible electronically and is free of charge. Work is already underway on the electronic case management system of the court registry.

When is opt out possible?

The opt out will be possible from the beginning of the "sunrise period" approximately two months before the UPC doors open for actions and for seven years from the entry into force of the UPCA, unless action has been brought before the UPC.

The declaration for opt-out should be filed as early as possible in order to avoid to be locked into the UPC system by a central action filed by a competitor. The “sunrise” opt-out applications will be registered on the first day of the UPC, preventing pre-emptive UPC actions to block the opt-out of the patent in dispute.

Although the practical implementation and exact timeline are still unclear, the UPC will probably start late 2022 / early 2023. The "sunrise period" could therefore begin as early as late summer 2022.

Which strategic aspects should be considered when deciding about the opt-out?

The decision to opt-in or not is an essential and urgent decision that patent holders have to make in 2022. Because the UPC will definitely run its course, the companies need to prepare their portfolios and litigation strategies in order not be unwillingly forced into the UPC by actions of a competitor. 

Remaining in the UPC system entails both opportunities and risks, as does the national litigation. An EU-wide injunction has tremendous effect if the infringer is present in all UPC markets. In such case, the EU-wide injunction is very cost-effective compared to the classical country-by-country-litigation. The EU-wide injunction goes hand in hand with the revocation risk by one single invalidity action. Consequently, opt-out strategy should balance criteria such as the strength of the patent as regards its validity, the scope of the protected market and the territories where potential infringers are present.

The UPC allows for a diversified enforcement strategy: The risk of the central revocation action could be mitigated by opting out a part of patent family while keeping other patents in the system, depending from their scope of protection and their strength regarding validity.

Furthermore, the UPC offers easier possibilities of gaining evidence, e.g. by means of inspection in a manufacturing site in one country that could then be used for getting an EU-wide injunction against the infringer.

Also, the enforcement of decisions, especially of inspection orders, is supposed to be easier in the UPC system than in national proceedings and applies to the entire territory of the member states. The UPC procedure is also supposed to be faster than the (scattered) national procedures. It can be taken for sure that the UPC will be very serious about efficient timing in the beginning in order to convince stakeholders to actively use the UPC litigation.

Although the jurisdiction trend of the UPC is currently completely unpredictable and the immediate thought of a lot of patent owners might therefore be to rather stay away in the beginning and wait and see what the future will bring, it is to be noted that the new system offers the possibility for patent owners to shape the new case law and bring in aspects that are important to their industry.

At this point, an individual assessment is necessary in order to be optimally prepared for the new court. Our team will be happy to assist you with strategic considerations regarding the UPC!