Are your contracts UPC ready? How to triage your key IP agreements and templates

This article was written and published before the opening of the UPC on 1 June 2023.

The introduction of the Unified Patent Court (UPC) and Unitary Patent (UP) has major implications for patent holders who license out their patent rights, businesses who rely on in-licensed patents, and co-owners of patents. In our previous article, we focused on how that impact can be managed in well-drafted patent licence clauses and co-ownership clauses. Here, we consider the practicalities of implementing a review programme to assess whether your existing key IP agreements and templates are ready for the UPC.

Well-drafted patent licence clauses and co-ownership clauses will typically already allocate control over prosecution, maintenance and defence of the licensed/co-owned patents, and control over enforcement of the licensed/co-owned patents between the parties. There tends be a broad range of positions on these issues in licence agreements, with no real market standard. It's not uncommon for an exclusive licensee in a spin-out licence from a university licensor to have responsibility and control over the prosecution, maintenance, defence and/or enforcement of the licensed patents. In other situations, with an industry licensor such as biotech-pharma licences or development and commercialisation arrangements, the licensor may retain control of prosecution, maintenance, and defence partnering arrangement of the licensed patents, but the licensee will control enforcement. Conversely, a non-exclusive licensee will rarely have rights beyond possibly some input into patent strategy. The position is often the same where a licensor grants field-limited exclusive licences, so that the licensor can hold the ring between the various exclusive licensees and balance their interests (and its own).

Aren't these types of clauses enough? Whilst accepting that the introduction of the UPC and UP gives rise to some new issues for licensors, licensees and co-owners, some parties might view these as points of detail which are already covered by the existing wording and question what more is required.

However, a well-advised party will still want to be able to demonstrate to its board and, potentially, its investors that it has carried out a systematic review of its key IP agreements, considered whether any amendments are desirable and achievable (whether merely to improve clarity, or to make substantive changes), and to create an internal paper trail of the conclusion of the review for future reference. We explore below a potential methodology for such a review.

Five-step methodology for triaging key current agreements and templates

• Identify your key current agreements containing patent licence or co-ownership clauses. Also identify any internal frequently used form agreements or internal templates which containing patent licence or co-ownership clauses.
• Consider whether, as a question of language and true construction, the existing wording is clear enough to cover all the new issues without ambiguity.
• If so, are the substantive positions under the existing agreement on all of the new issues appropriate, given the new risk profile arising from the introduction of the UPC and UP?
• Are further representations and warranties required? Are the notice provisions appropriate for the timescales of the UPC and do you hold up to date contact details for the purposes of serving contractual notices? Are existing governance structures (eg steering committees and IP sub-committees) adequate, or should a new UPC sub-committee be set up? Are any applicable contractual dispute resolution procedures workable in light of the timescales of the UPC?
• If not, consider whether the relative negotiating strengths of the parties mean that amendment of the existing agreement to reflect the desired substantive position could be achieved.

Start with identifying your key current agreements containing patent licence or co-ownership clauses (and any internal frequently used form agreements or internal templates which contain patent licence or co-ownership clauses).

Next we recommend that a party should consider firstly whether, as a question of language and true construction, the existing wording is clear enough to cover all the new issues without ambiguity. In our view, this will rarely be the case. For example, the typical wording of a clause dealing with "prosecution, maintenance and defence" of the licensed/co-owned patent(s) will not so obviously cover seeking unitary effect (which is a post-grant activity in the EPO, which must take place within the one-month period following grant) for the matter to be beyond dispute. An express reference to seeking unitary effect would improve clarity.

Similarly, a typical enforcement clause which confers on one of the parties "the first right, but not obligation, to initiate and control any legal proceedings against infringement or misappropriation of any Licensed Technology" will not so obviously cover control over opting-out of the jurisdiction of the UPC (or withdrawal of the opt-out) for the matter to be beyond dispute. An express reference to control over opting-out (and withdrawal of an opt-out) would improve clarity.

Incidentally whether a "prosecution, maintenance and defence" clause would cover opting out (or withdrawal of opt-outs) is completely unclear. Opting out (and withdrawal of opt-outs) are not issues related to "prosecution and maintenance". Instead, they are more closely related to enforcement, and so might be thought, at first sight, in the absence of express clarification to fall under the control of the party to whom control of enforcement has been allocated. However, opting out is highly relevant to the "defence" of the Licensed Technology (for example, resisting revocation/nullity actions), so on that basis might be thought to fall within a "prosecution, maintenance and defence" clause after all.

Thirdly, a party should consider whether the substantive position in the existing clauses is appropriate, given the new risk profile attaching to patent issues in Europe in light of the introduction of the UPC and UP (see our previous article for more information), and the interplay between seeking unitary effect and enforcement issues.

In this table, we've set out various substantive positions on "prosecution, maintenance and defence" issues and "enforcement" issues which are commonly encountered in patent licence and ownership clauses, with comments on their appropriateness for the UPC and UP regime, as well as potential further issues to consider:

Finally, a party should consider its negotiating strength relative to the other parties and whether it has sufficient leverage to achieve amendment of the existing agreement to reflect the desired substantive position within the required timescale.

To avoid opening the entire agreement to a potential renegotiation, consider whether amendment by way of a side letter rather than a formal deed of amendment is available and whether tactically - and also optically - that might be a better route than a formal deed of amendment. However, this choice will only be available if it is clear that a side letter would be effective legally. This in turn will depend on whether you are providing any consideration under the side letter to support the amendments being made for your benefit.

Should you wish to discuss a triage programme for your key agreements, updating your template licence clauses and co-ownership clauses, or have any questions about getting your contracts UPC  ready, please contact the authors of this article or any member of our UPC Group.

A wide range of detailed briefings and insights from the international Taylor Wessing UPC Group are also available on our UPC page.