The Unified Patent Court: help or hindrance? - European Scrutiny Committee Contents


4  The Unified Patent Court: help or hindrance?

Overview

57.  The consensus among patent professionals was that unified patent protection within Europe is desirable in theory.[12] This is because having one action and one decision to replace litigation in several countries has obvious benefits, such as consistency and reduced costs.[13]

58.  However, the theme of the evidence which the Committee received was that the current draft of the agreement to establish the UPC is likely to worsen the status quo;[14] a view not confined to the UK.[15] At the root of this are concerns about the jurisdiction of the Court of Justice of the European Union, increased forum shopping as a consequence of bifurcation being permitted in the UPC, increased litigation costs, the quality of judges, and the effect on SMEs (Small and Medium Enterprises), on the European Patent Convention, on the UK's position as a hub for international patent litigation, and on the UK's Patent County Court.

59.  The evidence also demonstrated concern about process. The drafting of the agreement was widely criticised for being both rushed and opaque.

60.  Only one submission of evidence favouring parts of the current draft agreement was received,[16] other than from the Government. A request to the Government to point the Committee to evidence in favour of the UPC was unanswered.[17]

61.  If the UPC goes ahead as in the current draft, the UK faces a difficult decision about whether or not to join in. Opting out risks marginalisation; opting in risks commitment to a damaging scheme. When asked, however, expert witnesses expressed a preference in favour of the UK joining the UPC, even in these circumstances, in the absence of an alternative[18]¯to be left out would be the worse option for UK business. However, this was said in the hope that London would be secured as the location for the Central Division, which would mitigate some of the ill effects of the UPC whilst reaping the economic rewards of hosting a large European institution.[19]

62.  Overall, there is mystification as to why the EU is pressing ahead in the face of such opposition. One theory, offered by Timothy Roberts and supported by the other expert witnesses, was as follows:

    The only theory I can suggest to you is that the EU needs a victory and this can be presented as a victory. This is something they have been trying to do for 40 years. They have almost got agreement on something. It is a very desirable objective and it is being presented, outside the UK, as a victory, as something that the EU can do. There is a need, as The Daily Beast requested, "Please cable victories". That is the motivation behind this.[20]

63.  The Government agreed that there had been attempts to rush the negotiation of the agreement.[21] However, it emphasised that in its view the UPC is not a done deal; "negotiations are ongoing and the Government will continue to work hard to ensure that the interests of UK industry are protected before we sign any final agreement".[22]

Jurisdiction of the Court of Justice

64.  Articles 6 to 8 of the proposed EU unitary patent Regulation contain provisions on direct and indirect infringement of patent rights. This means that EU law will govern this aspect of substantive patent law. Baroness Wilcox conceded that there was no published body of expert opinion supporting the inclusion of Articles 6 to 8 in the unitary patent Regulation. However, two arguments were put forward by the Government. Firstly, that "the effect of the acte clair doctrine [...] would potentially reduce the number of references to the ECJ".[23] As Nicholas Fernandes explained, "the doctrine of acte clair is a principle that, where provision is clear, it does not need to be interpreted; therefore, no reference is required".[24] He went on to say that "patent law [...] has been largely untouched by European legislation, so the opportunities for reference are less."[25]

65.  One member of the patent professions, Professor Dr Winfried Tilmann, agreed. He thought that the previous decisions of patent courts would mean that "it will not be necessary to start all over again in submitting all these questions to the ECJ, because of the acte clair doctrine".[26]

66.  However, Henry Carr QC said of this argument that it "misunderstands the criteria for references to the CJEU":

    A reference must be made unless the interpretation is acte clair. Acte clair only applies where a judge is sure, not just how he/she would interpret the provision, but also how it would be interpreted by all other Member States. This has led to a large number of references in relation to the Trade Marks Directive, and published expert opinion, including that of Sir Robin Jacob, emphasises that this will be the case with Arts. 6-8.[27]

67.  The second argument put forward by the Government in favour of Articles 6 to 8 was that "the infringement set out the very core of an IP right, and therefore it is crucial that these provisions appear in the EU legislation establishing the unitary patent". [28]

68.  By contrast, the vast majority of experts forecast unnecessary harm if references were able to be made to the Court of Justice.[29] There were two main concerns: delay and judges' lack of expertise.

69.  Henry Carr QC described the difficulties which currently result from delay:

    I have appeared in several cases in the European Court of Justice, largely because of the trademark system, which is already subject to the European Court of Justice. We have a trademark regulation, a trademark directive, so questions of interpretation are referred to the European Court of Justice. Let us say you are involved in a trademark case and a question of interpretation arises; unless the UK Court is absolutely certain what the answer is—not just here, but in all Member States—it has to refer it. So your case then stops and it takes about two years to get an answer from the ECJ and, of course, during that time there are additional costs because the parties have to prepare written observations, governments intervene, you go to a hearing in the ECJ and you eventually get an answer. It then comes back to the UK Court, who then tries to interpret the answer. There has not just been extra delay and extra cost but in trademarks it has been really difficult to interpret the answer. Then there is a great debate about who has won and then you have to continue with the case. It has not proved a system that intellectual property lawyers throughout the world wish to expand and the problem with the existing proposal is that it expands it into patents as well.[30]

70.  CIPA also foresaw particular difficulties for SMEs:

    Such legal uncertainty can lead to more litigation between parties trying to clarify their respective legal position. It can also prevent parties from entering a market in which they would be free otherwise to compete but for the uncertainty of the legal position and the threat of litigation. Both outcomes increase costs and can damage innovation and the functioning of the market, especially for SMEs.[31]

71.  Regarding judges' expertise, one member of the patent professions, Professor Dr Winfried Tilmann, had no concerns: "the ECJ has been very active in the field of trademark law [...] generally speaking [...] practice is impressively good".[32]

72.  However, many others had concerns about the judges' lack of experience in patent law. Henry Carr QC emphasised the problem, that "the quality of justice administered by any court is dependent on the expertise of its judges".[33] Therefore, the consequence of Articles 6 to 8 would be low quality decisions at the highest instance.

73.  Liz Coleman, on behalf of the Government, agreed that the Court of Justice has "no specialist experience".[34] Indeed, this was echoed by every other witness who gave evidence on this topic.[35]

74.  In particular, the undesirability of including Articles 6 to 8 in the unitary patent Regulation was repeated at a meeting of the Intellectual Property Judges Association on 28-29 October 2011. Twenty-seven judges were present, 24 of which were from the EU. They unanimously resolved that:

    They were against the proposed inclusion of Arts.6-8 of the current draft Regulation into the final Regulation and that if they were included the new system would fail to achieve the object of a better system of patent litigation in Europe.[36]

75.  Strongest of all was the statement made by Professor Sir Robin Jacob:

    "There is no time for anything other than plain speaking. I am fortunate enough to have had wide experience, as barrister, judge and now academic, with the patent system from all angles. I have many contacts amongst users and lawyers. I know of no one in favour of involvement of the CJEU in patent litigation. On the contrary all users, lawyers and judges are unanimously against it."[37]

76.  Neil Feinson referred to the Government's "desire for [Articles 6 to 8] to be removed from there to limit the opportunity for cases to go on reference to the ECJ",[38] as did Baroness Wilcox.[39] Nevertheless, Baroness Wilcox was clear that "among our negotiating partners and within the EU institutions there has been insufficient support to change the text by deleting these articles from the regulation."[40] If they were not removed, she explained "we are told by our witnesses that they still think we should go forward".[41] The numbers of concerns expressed by the patent profession suggest that this instruction is a last resort.

CONCLUSIONS

77.  With the exception of Professor Tilmann,[42] the patent professionals who submitted evidence were opposed to the Court of Justice being given jurisdiction over this, or any, aspect of substantive patent law. This was because:

  • Articles 118 TFEU does not require the Court of Justice to have jurisdiction over Articles 6 to 8 of the proposed Regulation: Article 3(2) is sufficient to establish an intellectual property right proving uniform protection;
  • it is just as important to unitary effect that provisions concerning scope of protection and validity are uniform as that provisions concerning infringement are uniform; yet Articles 6 to 8 do not contain provisions on scope of protection or validity;
  • this is likely to lead to the development of EU jurisprudence in one area of substantive patent law, causing unhelpful and unnecessary asymmetry;
  • the Court of Justice does not have the necessary expertise in patent litigation;
  • the preliminary reference procedure before the Court of Justice is too slow: in patent litigation, which concerns claims of continuing economic harm, commercial necessity and fairness require a court to come to a final decision as soon as possible;
  • the preliminary reference procedure will add considerable or prohibitive costs for litigants;
  • which would defeat the whole purpose of having a specialist patent court;
  • there are likely to be many references to the Court of Justice arising from its jurisdiction over Articles 6 to 8.

78.  Set against these are the arguments made by the Government, the Commission, and Professor Tilmann, namely that:

  • Articles 6 to 8 are necessary to establish the intellectual property rights contained in Article 118 TFEU (a point made by all three);
  • in addition, EU intellectual property rights are to be superimposed on national rights rather than derived from harmonizing national laws (the Commission);
  • it is inevitable that the Court of Justice should have ultimate jurisdiction over Articles 6 to 8, as they are provisions of secondary EU law (all three);
  • however, references to the Court of Justice will be rare because of the doctrine of acte clair (the Government, Professor Tilmann).

79.  It is plain, in our view, that the jurisdiction of the Court of Justice over Articles 6 to 8 leads to anomalous consequences-on what grounds can the infringement of a patent ever be considered more important than its validity as a matter of EU law?-and highly undesirable consequences-decisions by non-specialist judges, added delay and costs. To say that the doctrine of acte clair will limit the number of references made to the Court of Justice appears to be wishful thinking rather than evidence-based: the case law of the Court in relation to trade marks, design and copyright is a case in point.

80.  We agree with those who so strongly oppose the inclusion of Articles 6 to 8 in the unified patent Regulation. There is, however, in our opinion an inevitability to their inclusion. Whilst the arguments of Professors Kraßer and Jacob strike us as right as a matter of patent law, the counter-arguments of the Commission on what is required to implement Article 118 TFEU seem to reflect the firm views of the EU institutions, including the Court of Justice, as a matter of EU law. This calls into question whether incorporating a unitary patent regime within the EU will ever be practicable.

Separation of infringement and validity—bifurcation

81.  Henry Carr QC explained the meaning of bifurcation in his written evidence:

    In an action for infringement of a patent, the validity of a patent may be challenged, for example on the basis that it lacks novelty or contains no inventive step. Invalidity is a defence to an action for infringement.

    In the UK, validity and infringement are normally tried together. However, in Germany, they are separated, with the question of infringement being decided first. This is known as "bifurcation".[43]

82.  The current draft UPC agreement gives discretion to divisions of the UPC as to whether or not to separate trials of infringement and validity (i.e. whether or not to bifurcate).

83.  If a case is bifurcated, the local and regional divisions will deal with infringement cases and the Central Division will deal with validity.[44] The Central Division will use the language of the patent (English, French or German), whereas regional and local divisions will use the local language.[45] Dr Gassauer-Fleissner did "not see any reason why it should not work, because in particular Germany has a long tradition in excellent patent litigation. It is one of the leading countries in this respect."[46]

84.  However, no UK-based experts favoured bifurcation and most voiced their opposition.[47] The three main concerns raised were forum shopping, the effects on SMEs and fairness.

85.  Liz Coleman stated that "bifurcation is only an option for a panel, so we do not expect it to happen in every case".[48] However Henry Carr QC stated in his oral evidence that:

    [I]f Germany generally bifurcates and the UK doesn't, then as a patentee—patent holder—you will start your case in Germany because, if you think it through, you want to win and you have got more chance of winning and getting your injunction if validity is not being considered.[49]

86.  Therefore the impression was that, if bifurcation is permitted, patentees are likely to choose courts that bifurcate because this gives them a better chance of winning. This was described as forum shopping: choosing a particular court because the desired result is more likely there. Therefore, bifurcation would be commonly chosen by patentees.

87.  Henry Carr QC thought there would be further detriment to SMEs:

    [T]he practical problems of bifurcation for a company are—say that you are a small company; you trade on the internet. You can be sued anywhere and an injunction will apply across the whole of Europe. You are sued in wherever—Greece, an injunction is granted on the basis that you fall within the claims of the patent and three and a half years later the Central Division says, "Oh, by the way, that patent was invalid", at which point you are out of business. It is a real, practical problem.[50]

88.  CIPA viewed the practice as unfair:

    [I]t is quite unfair to the party accused of infringement. If the patent is invalid, it cannot be infringed. The infringement trial (in Germany) is faster than the validity trial. Infringement may be found (and the "infringer" required to cease operations and pay damages) well before the patent is proved to be invalid in the validity trial. An even stronger objection is that the patentee can put a different case in the two trials [...] Trying validity and infringement together is intrinsically fairer because the patentee must then argue only for one consistent meaning.[51]

89.  However, Liz Coleman, on behalf of the Government, stated that:

    One of the ways that we hope to mitigate [...] would be to address the timing issue, so that the two arms of the case should come together in timing; you should not be able to have a decision on infringement without the decision on validity being speeded up so that the two come together. We are hoping that can be addressed through the rules of procedure.[52]

90.  Neil Feinson went on to say that "before we sign on the dotted line, we need to know what the rules of procedure are going to be, because they are so important".[53] Baroness Wilcox, however, was clear that "we are negotiating at the moment [...] There is no line in the sand".

91.  Henry Carr QC was concerned that "the agreement will be forced through before procedural rules have been agreed".[54] CIPA were also concerned that "the danger from bifurcation is grossly underestimated".[55]

FORUM SHOPPING

92.  Witnesses pointed out that forum shopping could arise from reasons other than bifurcation. Dr Gassauer-Fleissner, for example, said:

    I think the choice of the Court to go to will not, in my view, depend on the bifurcation issue. It may depend on the question of whether I want to go to an experienced division or not. I see this as different from the bifurcation issue.[56]

93.  The benefits of forum shopping were outlined by Vicki Salmon:

    My personal view is that forum shopping is a good thing at some levels, as it produces competition between Courts. One of the things that we have had in this country has been competition between the High Court and the Patents County Court, which has led to each of them improving their procedures.[57]

94.  This was echoed by Liz Coleman[58] and Baroness Wilcox: "Genuine competition on a fair basis can lead to efficiency and improvements".[59]

95.  However, Henry Carr QC drew a distinction between choosing the most qualified court and choosing a court where one is more likely to get the result one wants:

    [U]nder this proposal you say, "Okay, I can choose where I am going to sue. I am not going to sue in the UK or perhaps Holland, where I am going to get a judge who really knows." I do not want to be too offensive about a country: "I am going to sue in Bulgaria this time". That is real forum shopping and I get my injunction for everywhere.[60]

96.  Baroness Wilcox agreed that she "would be concerned about users shopping around for the right decision".[61]

97.  However, she stated that "the whole idea of us wanting to get the court right is that, wherever, therefore, the court is sitting in any of those countries, they will be playing by the same rules. This is the whole idea".[62] When asked to respond to concerns that courts across Europe do not operate according to the same standards, Baroness Wilcox replied: "Yes I would agree, of course, that the systems are all different. I would agree with all of this, but here is an opportunity for us to see if we can improve things for ourselves within the European Community".[63]

98.  Despite Baroness Wilcox's optimism, the sense was that forum-shopping would be difficult to avoid as it is already happening in practice. As Dr Gassauer-Fleissner said:

    I think this may definitely lead to forum shopping for obvious reasons [...] There are many scenarios typical for each case and depending on the situation you find yourself in you may want to go to a Court that is perhaps more friendly to infringers or that is more friendly to invalidate patents. This is what is happening now even within countries like Germany.[64]

99.  He also acknowledged that deciding the best country in which to bring a claim would then become one of the first issues to consider when advising a patentee.[65]

100.  CIPA anticipated particular problems for SMEs if forum-shopping becomes common:

    This will be particularly inconvenient for small companies from other countries, who will have extra expense in dealing with overseas proceedings not in their own language. They may be able to get the suit transferred from the local German division of the European Patents Court to the Central Court, so that infringement and validity can be tried together—but arranging the transfer will itself cause added trouble and expense. A cheaper alternative may be to concede the case unargued. This is a discouraging outlook for small companies.[66]

CONCLUSIONS

101.  The proposed UPC has discretion to bifurcate in any particular case, with a requirement that the Central Division will hear infringement and validity arguments at the same time. But there is no guidance as to how that discretion should be exercised. UK patent professionals are particularly concerned about this. They say that patentees will be advised to file their infringement suits in the local division of the UPC in Germany wherever possible, for the obvious reason that defendants will not be able to raise the validity of the patent as a defence. If the German local division finds in favour of the patentee, the judgment will be valid throughout the EU (a national court's decision is limited to national jurisdictions). This means an increase in forum-shopping and that Germany is likely further to dominate the market in patent litigation.

102.  It will also be particularly inconvenient for small companies, which will have extra expense in dealing with overseas proceedings not in their own language. They may be able to get the suit transferred from the local German division of the UPC to the Central Division, so that infringement and validity can be considered together, but arranging the transfer will itself cause added trouble and expense.

103.  We recognise that a patent court which represents the traditions of 25 EU Member States, including Germany and Austria, will have to allow for bifurcation, but the probable consequences of this appear to us to be so grave, for the UK in particular, as to question the validity of a unified patent court in the EU in the first place.

Absence of suitable judges

104.  Baroness Wilcox expressed confidence in finding suitable judges:

    Besides our own expert judges, there are already 150 patent judges in the German federal court, and states where there is little patent experience are keen to develop that expertise. All the participating Member States are committed to beginning training judges as soon as the court Agreement is signed. This would ensure that enough suitably qualified and experienced judges would be able to start work as soon as the new system comes in to force.[67]

105.  She also anticipated sufficient time to train judges because:

    The Unified [Patent] Court should not lead to an increase in patent cases in Europe. [...] It will be the reverse, in fact, as multiple litigation is replaced by a single European act. A proportion of the existing expert patent judges in the major jurisdictions will therefore become available for work for the Unified Court as the caseload of the Court grows. It will not reach capacity for some years, and training for additional judges is already planned to start as soon as the court is agreed.[68]

106.  However, the feeling among the patent profession was that the draft agreement was unrealistic. Henry Carr QC:

    Article 10(1) of the draft agreement requires that judges of the Unified Patent Court shall "ensure the highest standards of competence and proven experience in the field of patent litigation". Pursuant to Article 6, each panel must have a multinational composition. The Commission estimates that by 2022, when the transitional period ends, 101 full time and 45 part time judges will be required.

    Patent expertise varies greatly between Member States. In some countries, such as the UK, Germany and the Netherlands, there are many patent cases. In others, such as the Eastern European countries, there are very few.

    Therefore the requirement for multinational panels of judges possessing the highest standards of competence in patent litigation is a pipe dream. The quality of justice administered by any court is dependent on the expertise of its judges. It will be impossible to train such a large number of judges, who do not have the relevant experience, to an acceptable standard.[69]

107.  When asked about the likelihood of finding suitably qualified judges for the UPC divisions, Dr Gassauer-Fleissner agreed; "This indeed will be a problem because it is true that the number of patent infringement cases is very different in the various countries".[70]

108.  There were two consequences that alarmed the witnesses. The first was uncertainty about funding, as Henry Carr QC described:

    [W]ho is going to fund it all? Who is going to fund, for example, the training of these vast numbers of judges, all of whom are supposed to be patent experts, from Member States that have no patent expertise and have hardly ever heard a patent case?[71]

109.  The second, as Vicki Salmon explained, was the resulting difficulties in administering justice within the UPC framework:

    [I]f you have an incredibly valuable pharmaceutical patent you are quite worried about a non-expert judge deciding to revoke that in a territory that is not very familiar with patents, and your protection across the whole of Europe has gone until you can get it put back through the appeal process.[72]

110.  The SME Innovation Alliance felt that there was already an absence of suitable judges:

    A patent [...] must be written so that it can be understood by a "person of ordinary skill in the art" (POSITA) [...] a patent is going to be incomprehensible to someone who is not a POSITA. This latter category includes judges. [...] Binding decisions on infringement should be made by a panel of appointed experts in the field of technology in question.

    [...]

    In order to obtain grant, patents have been examined and approved by technically qualified patent examiners (who represent the authority's official POSITA).

    [...]

    If all of a granted patent is open to challenge then patent examiners are redundant. If their work is unsatisfactory, then address that. Instead SMEs have to assume responsibility and pay with their business when opponents challenge a granted patent—the cost of a challenge usually being sufficient to sink the SME or, at minimum, its patent.

    Most challenges attempt to ascribe different meanings to words in the patent that the patent examiner had to have used e.g. "prior art", deficient specification. Patent examiners do not appear in court, which seems an obvious failing as it is their decisions that are challenged, thus making this system open to a great deal of abuse. Anything relevant will, of course, have already been examined by the patent examiner in order to allow grant or reject the patent application so such challenges should not be allowed.[73]

CONCLUSIONS

111.  It is important to keep in mind what is required of a good patent judge, described by the Intellectual Property Lawyers' Association as follows:

    Patent law comprises a series of concepts which are unfamiliar to most lawyers (and judges) who have not made a special study. Furthermore, decisions in patent cases require the application of the law to scientific facts in areas of technology with which the judges are unfamiliar. A good patent judge accordingly requires knowledge of patent law and experience of its application, together with a willingness to engage with and understand unfamiliar technologies. Judges who do not have these characteristics will find it difficult to give decisions which are fair and which will be respected by the litigants.[74]

112.  Patent expertise varies greatly between Member States. In some countries, such as the UK, Germany and the Netherlands, there are many patent cases. In others, such as the Eastern European countries, there are very few.

113.  There is an irony to the fact that the ultimate jurisdiction for infringement of the unitary patent will lie with a non-specialist court, as EPLAW points out:

    A fundamental objective of the project is to avoid decisions by inexperienced judges, particularly in courts of first instance, by centralizing patent cases before specialized courts and judges. The proposal as it stands aggravates the deficiency of the current system by turning the situation upside down since the CJEU, as a court of appeal for infringement of unitary patents, will be far from specialized. In any event, much effort is intended to be made to secure experience in the local divisions and in creating a central division and a court of appeal which are structured and designed specifically to meet the particular challenges of patent law. However, on questions of infringement of the unitary patent under articles 6 - 8 the final say will now lie with the CJEU which completely lacks all the characteristics and features commonly accepted as requirements for a court that can render quality decisions and which will not be restructured to meet those characteristics and features. Further, the judges there will not have to go through the selection and training process that will be required for judges at the specialized patent courts.[75]

114.  The requirement for multinational panels of judges possessing the highest standards of competence in patent litigation is unrealistic. The quality of justice administered by any court is dependent on the expertise of its judges. Several of the witnesses, such as Henry Carr QC, conclude that it will be impossible to train such a large number of judges, who do not have the relevant experience, to an acceptable standard. We have little reason to prefer the assurances of the Government to the contrary over the experienced views of patent lawyers.

Costs of litigation and effect on SMEs

115.  Baroness Wilcox acknowledged that she "cannot give a definitive view of the costs and benefits, at least in monetary terms, as fees for the patent and the court are still to be decided."

116.  This was of concern to the patent profession.[76] As Dr Gassauer-Fleissner said:

    Nobody knows what this is going to cost. On the one hand, currently, at least in my country, even the Government does not know what it would cost because there are still disputes about where the local divisions would be and whether each country will have a local division. Secondly, nobody knows what the court fee will be. Nobody knows what costs can be reimbursed or asked to be reimbursed by the successful party.[77]

117.  As a result, although witnesses approved of the Minister's intention to reduce costs,[78] doubts remained over whether the proposed UPC was realistic. CIPA was sceptical:

    We have seen no reliable estimates for renewal fees or of litigation. Nevertheless it is claimed that the new system will be considerably cheaper, to the particular advantage of smaller companies (SMEs). However, this claim is based on doubtful assumptions.[79]

118.  Indeed, the patent profession was overwhelmingly of the opinion that the current draft of the UPC Agreement would increase litigation costs. The first concern was the overall costs of the UPC in comparison to the UK's current court system. As Dr Gassauer-Fleissner explained:

    [T]he cost of patent litigation is very different in the various countries and the Member States of the European Union. I would go as far as saying there is a ratio of one to 10 from the cheapest country to the most expensive country. From most of the civil law countries' points of view the new system would mean a significant increase in costs.[80]

119.  Henry Carr QC agreed that the UPC structure would be more expensive for the UK:

    The current proposal is to have a Central Division, the location of which is yet to be determined, as well as Local Divisions in different Member States. A Regional Division may also be set up for two or more States upon their request. Each panel of each Division will have three judges.

    [...]

    This complex structure is likely to be far more costly and burdensome for SMEs than the existing system in the UK.[81]

120.  Baroness Wilcox stated that "at the forefront of our mind is growth for our country and for our people in our country to have the very best way of proceeding in the world, particularly within the European Community [sic]".[82]

121.  The patent profession's second concern was that costs would increase for SMEs. Again, there were concerns that predicted cost savings were unrealistic.

122.  In support of the savings to SMEs, Baroness Wilcox focussed on the relative costs of securing patents in 25 Member States, "we need SMEs in particular to be able to obtain a single patent covering 25 countries at an affordable cost. That is the whole idea."[83] However, CIPA thought that very few SMEs actually require protection in all 25 States and so cost savings would not be as great. In support, they quoted statistics estimating that 2% of patents are annually validated in all 27 EU Member States whereas 40% are validated in only the five largest EU markets.[84] CIPA predicted that, as a result, the UPC's lack of flexibility would be detrimental for SMEs:

    If the patentee needs to economise, with a selection of countries he can abandon the less vital rights, and keep the others: with the unitary patent, the only choice is to pay in full or lose all rights.[85]

123.  Dr Gassauer-Fleissner summed up the harm he envisaged for SMEs:

    Creating an invention has two sides. One is getting the patent and the other is enforcing the patent. You are applying for a patent to get the patent and to enforce it and if enforcement is getting too expensive, in particular for SMEs, your patent has less value because many of those will not be able to afford it.[86]

124.  Henry Carr QC set out the expectations if the current draft UPC Agreement proceeds and causes increased costs:

    There is a real fear in some quarters that some SMEs will fold because they are unable to get themselves properly represented in a distant European division and/or, if subject to a Europe-wide injunction from a remote court in a bifurcated system on their main product line, will simply not have the funds (without a product to sell) to enable them to establish that the patent is in fact invalid within a reasonable time. That would amount to a denial of justice. I am not persuaded that this concern has been taken on board.

    These concerns are not just shared by the professions and the judiciary. They have also been expressed by industry. For example, on 16 December 2011 the CBI and IP Federation wrote to Baroness Wilcox describing the current proposals as "deeply flawed" and that they would, if accepted create a patent system worse than at present. The letter was endorsed, inter alia, by the Bioindustry Association. There is anecdotal evidence that substantial research-based undertakings are so concerned that they have started to file national instead of European patents, in an attempt to avoid the system altogether.[87]

125.  These concerns were echoed emphatically by the SME Innovation Alliance. They noted that the negotiations were making "a huge assumption which is that patent disputes should be tried in a court"[88] and asked "why other, far more accurate and reliable approaches such as technical binding arbitration are not being considered given this important opportunity".[89]

126.  They also felt that costs for SMEs were prohibitive:

    All these processes rack up enormous costs, and we do not refer here to only legal costs and fees but those borne by the SME itself. It has to pay for its management and staff to travel, stay in accommodation and be diverted away from their business [...] [N]o SME can actually commence a case because of the high barrier of these different costs.[90]

127.  The SME Innovation Alliance harboured grave concerns for the future of UK businesses, because "no serious growth can result from such a system in which only corporate patents can be enforced".

VALIDITY OF THE EU IMPACT ASSESSMENT

128.  Vicki Salmon of CIPA expressed concerns about the EU's impact assessment being "out of date" because:

    [U]p until the bringing in of the enhanced cooperation, the EU was going to be heavily involved in the Court and was therefore going to provide a lot of funding from central resources for the divisions of the Court and for the training of the judges. With the change of that, following the enhanced cooperation, the EU funding was then not going to be available anymore.[91]

129.  Liz Coleman, on behalf of the Government, did not think that the subsequent lack of EU funding would present a problem:

    In the Government, we have always taken the view that the court should be self-funding from user fees, so we thought it was a perfectly acceptable way forward to go with Member States' funding rather than it coming from the EU budget, which we contribute to anyway. The funding mechanism, then, as far as the UK is concerned, does not make a lot of difference in terms of how the money actually gets there.[92]

130.  Henry Carr QC stated that the EU's impact assessment was, "extremely poor and extremely uncertain because they are based on all sorts of assumptions about how many cases are going to happen".[93]

131.  In addition, he thought it was "unclear whether any impact assessment has been done by the EU authorities of the effect of requiring the CJEU to determine questions of infringement when it cannot determine questions of validity".[94]

132.  Overall, the patent professions seemed to reach a consensus, voiced by Vicki Salmon, that "we need a new assessment as to what the costs would be, what the court fees are going to be and how that is going to be funded".[95]

CONCLUSIONS

133.  This complex structure of the UPC is likely to be far more costly and burdensome for SMEs than the existing system in the UK. A UK SME engaged in cross-border trade may also be required to defend itself against a pan-European injunction for patent infringement in the language of the local division chosen by the patentee.

134.  How the UPC will be funded is highly speculative. There are no reliable estimates for litigation costs, but it is clear that a panel of three judges will cost more than a single judge. CIPA comments:

    We have seen no reliable estimates for renewal fees or of litigation. Nevertheless it is claimed that the new system will be considerably cheaper, to the particular advantage of smaller companies (SMEs). However, this claim is based on doubtful assumptions. Comparisons are made between the costs of obtaining protection by 25 separate national patents via the EPO route with the cost of a unitary patent. This shows the unitary patent to considerable advantage—it could be much cheaper. But whether an SME necessarily needs protection in 25 EU countries is not considered. No inventions are ever protected in all countries where patents can be obtained. The cost of rights obtained is roughly proportional to the number of countries in which patents are sought. The additional value of extra rights falls rapidly. An SME with a significant invention will rarely be well advised to file in all countries of the European Union. It is often a better use of limited funds to file only in a few of the larger countries of the EU, those in which competition is likely to be most important.[96]

135.  Despite Baroness Wilcox's insistence that "there is a very strong commitment from all those involved in negotiations that the patent and court system should be affordable for SMEs"[97] and "you can be sure that the one thing the Department for Business is not going to be doing is wanting to make small and medium-sized businesses disadvantaged",[98] the patent professions remain unconvinced. As CIPA stated, "the statement is strong on hopes and weak on certainties [...] there are too many opportunities for things to go wrong".[99] We share the concerns expressed by the professions that the UPC will be prohibitively expensive, and also take the view that the EU impact assessment needs to be urgently revisited.

Exclusivity and transitional provisions

136.  The current draft UPC Agreement gives the UPC exclusive jurisdiction for all infringement and validity litigation concerning both unitary patents and national patents granted by the EPO (European Patent Office). A seven-year transition period is envisaged, during which patents granted by the EPO will not have to be litigated in the UPC.

137.  Regarding the transition period, the Minister has stated that "a review will be carried out five years after the entry into force of the Agreement, with the possibility of prolonging the period by up to another seven years".[100] Liz Coleman described this as "already getting quite long".[101] However, EPLAW did not consider this to be long enough:

    Disputes about patent infringement very often arise towards the end of the 20 year patent protection period. Accordingly, it will only be possible to evaluate the viability of any new system, and its acceptance by new users, after more than seven years.[102]

138.  CIPA felt that a review was not sufficient: "If the system proves not to work, we have no redress. A "review" alone is not enough (reviews rarely changed things much). Instead, the review should provide member countries the opportunity to change or leave the system".[103]

139.  Regarding exclusive jurisdiction, Henry Carr QC's inclination was that patentees would try and avoid the UPC.[104] CIPA also advised that, "Such uncertainty as to the quality of the court and system may well mean that many companies will choose to pursue litigation through the national route for many patents in order to avoid the new court".

140.  In his oral evidence, Timothy Roberts stated that; "the European Patent Office, the new system introduced in 1978, has really been a remarkable success"[105]. The resulting worry expressed by CIPA in written evidence was that "if the new system doesn't work, it could be severely damaged, because in order to avoid that system, inventors will have to bypass the EPO".[106]

141.  Henry Carr QC also thought that a problem, even if inventors choose to opt out of the UPC, is that "they have no choice when they are defendants".[107]

142.  With reference to SMEs, Timothy Roberts was troubled by the effect of exclusivity on the means of enforcing patents:

    We now have the Patents County Court, in which costs are capped and damages are limited to £500,000, and you have a special procedure. We have a new judge who simplifies the procedure and speeds it up. [...] Now, under the proposed new system, the exclusive right of the new Court will apply not merely to unitary patents but also to the European patents, which everybody here takes more or less as a routine. [...] so the exclusivity right of the new Court will remove from SMEs the opportunity to enforce their European patents quickly and economically.[108]

143.  Therefore, CIPA recommended that "we need to know the track record of the European Patents Court over at least a decade before any such exclusivity starts, and then the compulsion should only relate to applications filed after the end of that transition period and not to all then pending applications and granted patents."[109]

144.  Vicki Salmon thought the UPC should firstly, "show that it is a success and then people will not want to use the national systems".[110]

145.  By contrast, Liz Coleman explained that "exclusive jurisdiction is something that the court will need, because otherwise we will end up with conflicting decisions between the Unified Patent Court and the national court in relation to, certainly, the bundle patent in due course".[111]

146.  When asked why the UPC was being given exclusive jurisdiction regardless of the expected problems, Vicki Salmon said "There seems to be a move, particularly from within the Commission, that the aim is to have a unitary Court and therefore everything should go to it and if it is in competition with other Courts it would not get any business."[112] Timothy Roberts also suggested that "they would not make it compulsory unless it was necessary to make it compulsory".[113]

CONCLUSIONS

147.  The overall sense of the witnesses' evidence was that the UPC was being given a monopoly.

148.  The draft agreement gives the UPC exclusive jurisdiction for all infringement and validity litigation both on unitary patents and on national patents granted by the EPO. The transitional period of seven years after which European patents fall under the jurisdiction of the UPC is, in our view, too short. The fact that a review will be carried out to see whether a further seven-year transitional period is required is not a guarantee that the transitional period will be extended. The evidence we received stated that disputes about patent infringement very often arise towards the end of the 20-year protection period. Seven years is therefore a short period within which to assess the viability of the UPC.

149.  In our view, the exclusivity of the UPC will be a problem if the UPC, as predicted, turns out to be disadvantageous to patentees and so is avoided by them. This is because it will stop patentees from using European Patents under the EPO, which after seven years fall under the jurisdiction of the UPC. According to CIPA, the EPO is considered to have been a success:

    The EPO has been a remarkable success, without coercion. As an optional new system, competing with national patents, it has won the trust of users (who retain the opportunity to file for patents nationally). It is now a cornerstone of the European patent regime. But if the new Court system doesn't work, it could be severely damaged, because in order to avoid that system, inventors will have to bypass the EPO.

    The uncertainties are numerous. No one knows yet how the European Patents Court will function or what it will cost. Whilst it is expected to be cheaper than litigating the same patent in three or four different EU member states, it is unlikely to be cheaper than litigation in one member state only. Will cases take longer than they do at present? We don't yet know the Court rules, which will be a key determinant of quality. Such uncertainty as to the quality of the court and system may well mean that many companies will choose to pursue litigation through the national route for many patents in order to avoid the new court.[114]

150.  The UK Patents County Court (PCC) has procedures and a costs regime specifically designed for SMEs and is currently working well. After the transitional period, the current proposal gives exclusive jurisdiction to the Unified Patents Court, even in respect of existing European Patents, and so will exclude the PCC.

151.  Some experts therefore recommend that the system of European patents should be allowed to continue in parallel with the UPC, whose jurisdiction would become non-exclusive.[115]

152.  We conclude that the UPC should not be given a monopoly over both unitary and European patents until its capabilities have been proved.

Location of the Central Division

153.  In addition to the UK's bid to host the Central Division, Baroness Wilcox informed the Committee that "Germany, France and the Netherlands have also made similar bids".[116] She told us that "Securing the Central Division for London is still an important priority for the United Kingdom",[117] however she warned the Committee that "negotiations are still ongoing";[118] the situation remains unresolved.

154.  All of the patent professions based in the UK agreed and wanted the UK to host the Central Division.[119] They were motivated by the UK's expertise in patent litigation, the absence of other EU institutions in the UK and the economic benefits.

155.  The City of London Corporation stated that "it is important that the Central Division is located in a city with global commercial reach."[120] It went on to cite evidence that, in 2009, "net exports of legal services from the U.K. amounted to some £2.5 billion" and, in 2010, "in a survey of global corporations, 30% expressed a preference for London as the seat of international arbitration; its closest competitors were Geneva, on 9%, and Paris, on 7%".[121]

156.  It also pointed out that:

    English is, increasingly, the international language of choice in commercial and scientific fields, as is pertinently demonstrated by the fact that some 55-60% of patent specifications filed at the E.P.O. are written in English (compared to approximately 30-35% in German and 10-15% in French).[122]

157.  Timothy Roberts agreed that it "makes sense to litigate them in the language that they were granted in, in the country whose native language that is."[123]

158.  The City of London Corporation also noted that:

    [O]ther countries already host European intellectual property institutions: for instance, the E.P.O. in Munich, the Plant Variety Office in Angers, and the Office for Harmonisation in the Internal Market (Trade Marks and Designs) in Alicante. On this point and more broadly, it might be argued that the U.K. has a comparative dearth of significant European institutions, given its size and importance.[124]

159.  Henry Carr QC highlighted the economic benefits:

    Although estimates vary, the current annual spend by industry (much of it from overseas) on patent litigation and associated advisory services in the UK is about £700 million. If the Central Division is located outside the UK and, if, as a result, most litigation is conducted elsewhere, this is projected to decline significantly. By contrast, the volume of patent cases heard in the UK (and consequent annual spend) may increase considerably, if the Central Division is located here. This seems conservative, as all validity challenges and all declarations of non-infringement will be heard by the Central Division.

    The Central Division will create a significant number of highly skilled jobs. By way of comparison, the European Patent Office is located in Munich and employs at least 7000 people (the briefing note suggests a higher figure). Four times as many German nationals are employed at the EPO than UK nationals. Whilst the Central Division will not require as many staff, it is likely to be a major European institution, with consequent indirect enhancement of its location. As previously noted, if the Central Division goes to Germany, the bulk of the patent system, from grant to enforcement would be there.[125]

160.  When asked if there were circumstances in which the UK would compromise on the location of the Central Division, Baroness Wilcox said, "yes".[126] She also explained another option:

    [T]here was a suggestion that the Central Court might not necessarily be led by a national judge from the country it was going to be located in; it might be led by someone from another country. We would like to think that, if we did not get the location, we might be able to lead on that.[127]

161.  Henry Carr QC also suggested an alternative:

    It is not clear that there has to be only one seat of the Central Division. One option would be for the Central Division itself to have separate "seats" of which one would be the UK. From a UK perspective, this would be better than nothing. Alternatives such as these have not been considered.[128]

162.  However, he emphasised that the UK has a great deal at stake and the Central Division offers a saving grace:

    If the Central Division is not in London, the current proposal will bring no benefit to the UK and considerable disadvantage to the UK economy overall.[129]

    [...]

    I do not believe that Europe as a whole is likely to benefit from the current proposal [...] However, the country where the Central Division is located is likely to benefit disproportionately[...][130]

    Assuming it continues, whoever gets the Central Division will be able to mitigate [...] definitely, the most serious effects.[131]

CONCLUSIONS

163.  The location of the Central Division will be crucial, as it will inevitably have significant influence on the practice and procedures of the Court, as well as bring significant economic advantages to the host city. Bringing the Central Division to London (already a centre of international arbitration) would both build the credibility of the Court and bring economic benefits to London. If the Central Division is located outside the UK, there will be far less requirement for the high level of patent expertise that currently exists in this country.

164.  It appeared from the Minister's evidence that this was, however, an issue on which the UK might compromise.[132] This would be unacceptable. As one of our witnesses noted "Whoever gets the Central Division will be able to mitigate or to put its own national stamp—because it is the most important place—on how this Court works. For example, there will be decisions the Central Division makes that affect everywhere. You will be able to mitigate, definitely, the most serious effects."[133]

Supplementary protection certificates

165.  Baroness Wilcox stated that:

    There is currently a lack of clarity around how the current system of SPCs will apply to the unitary patent and the pharmaceutical industry is quite rightly concerned. We need the Commission to bring forward legislation to extend the availability of SPCs to the new unitary patent, and the Commission has signalled its willingness to do so.[134]

166.  This issue concerned both CIPA and EPLAW.[135] CIPA set out their worries in their written evidence:

    Supplementary Protection Certificates ("SPCs") are a form of patent term extension which can be obtained for certain pharmaceutical and agrochemical products. The extension compensates for the time taken to obtain by regulatory approval. These rights mean a great deal to drug developers.

    [...] SPCs are granted by national patent offices on national patents [...]

    This regime will not extend to the new EU patent. A new regime is required. This is not simply a case of needing to adapt the current regulation to cover the EU patent as well as the national patents, an authority which will grant and administer the SPCs must also be established.[136]

167.  CIPA then went on to describe the uncertainties as to how and on what basis SPCs will be granted with unitary effect, and how they may be enforced or their validity challenged in the proposed unified system.

CONCLUSIONS

168.  On this issue, both the patent professions and the Government seem to agree that certain provisions are urgently required.

Procedural rules

169.  Baroness Wilcox stated that: "We have been clear during the recent negotiations about our wish to see and consider a draft set of rules before signing the court Agreement".[137] However, she recognised that, although there has been "work on the rules of procedure by the group of experts that has started up again. That is about as far as we have got so far".[138]

170.  Witnesses expressed concerns about inadequate consideration of the procedural rules.[139] Henry Carr QC explained:

    A current (un-agreed) draft of the rules is immensely complex, containing over 200 provisions. Yet none of the existing documents even address fundamental questions, such as third party liability for patent infringement (accessory liability), legal professional privilege etc. Principles will have to be developed from scratch through case law of the new Court, a process which will be unpredictable and expensive.[140]

171.  Dr Gassauer-Fleissner was sceptical about the influence the patent professions would have; "I am not aware that any comments of EPLAW made any impact on this. Also my understanding is that there was not much discussion about the rules of procedure anyway."[141]

172.  The Vice-Chairman of the Intellectual Property Bar Association, Daniel Alexander, is expected to suggest amendments to the rules of procedure.[142] Despite this, Henry Carr QC went on to express concern that: "the agreement will be forced through before procedural rules have been agreed[143]". This concern was shared by CIPA, following the former Polish Presidency's announcement that the UPC Agreement was being delayed only by disagreements regarding the location of the Central Division.[144]

173.  Overall, those witnesses who commented on procedural rules felt strongly that they ought to be approved before the UPC is agreed.[145]

CONCLUSIONS

174.  We think that it is premature to conclude the negotiations on the UPC agreement. The reasons for this are well set out in the written submission from EPLAW:

    It is premature to conclude any agreement on the new system. Important open issues include (1) the fees payable by the users of the new system (this again is vital for SMEs), (2) the allocation of costs and revenues to the participating states (which will play a role in some states´ decision on whether or not to create a local division of the court which in turn again is of importance for SMEs), (3) the draft procedural rules, which presently contain more than 400 provisions, will require an enormous effort to find compromises between the participating states on fundamental aspects of civil procedure law to ensure a harmonized, expeditious and appropriate procedure for all type of cases, and, not least, (4) the amount of recoverable costs that a successful litigant may claim. Those issues must not be left for later discussion but should be addressed before any agreement to implement the proposed system is concluded.[146]

175.  We note the emphasis placed by the Government on the negotiation of the Rules of Procedure as curing the defects in the UPC agreement, for example in relation to contemporaneous hearings for infringement and validity actions in relation to the same patent.[147] We asked to be kept informed of significant developments in the negotiations on the Rules of Procedure, and of how consultations with stakeholders have influenced the Government's position in those negotiations.


12   Henry Carr QC (Ev 36); CBI (Ev w1); CIPA (Ev 39); IP Federation (Ev w2); IPLA (Ev w3) [Note: references to 'Ev wXX' are references to written evidence published in the volume of additional written evidence published on the Committee's website] Back

13   IPLA (Ev w3) Back

14   Ev 29; Ev 37; Ev w1; Ev 39; Ev w2; Ev w4; Ev w5; Ev w12; Ev 53  Back

15   Ev 29; Ev 53 Back

16   Ev w7 Back

17   Q 1 Back

18   Q 33; Ev w3 Back

19   Qq 33, 35 Back

20   Q 22 Back

21   Q 76 Back

22   Ev 48 Back

23   Q 131 Back

24   Q 131 Back

25   Q 134 Back

26   Ev w7 Back

27   Ev 46 Back

28   Ev 48 Back

29   Q 2; Q 45; Ev 36; Ev w3 Back

30   Q 12 Back

31   Ev 39 Back

32   Ev w7 Back

33   Ev 36 Back

34   Q 101 Back

35   EPLAW (Q 45); CIPA (Ev 39); IPLAW (Ev w3); Henry Carr QC (Ev 51);  Back

36   IPJA; Ev 36 Back

37   Ev 36 Back

38   Q 81 Back

39   Q 107 Back

40   Ev 36; Ev 48 Back

41   Q 107 Back

42   Ev w7 Back

43   Ev 36 Back

44   Q 139 Back

45   Q 140 Back

46   Q 60 Back

47   Henry Carr QC (Q 24); CIPA (Ev 39); IPLA (Ev w3); AIPPI (Ev w5) Back

48   Q 142 Back

49   Q 24 Back

50   Q 24 Back

51   Ev 39 Back

52   Q 142 Back

53   Q 93 Back

54   Ev 36 Back

55   Ev 45 Back

56   Q 61 Back

57   Q 32 Back

58   Q 103 Back

59   Q 110 Back

60   Q 32 Back

61   Q 111 Back

62   Q 122 Back

63   Q 123 Back

64   Q 71 Back

65   Q 72 Back

66   Ev 39 Back

67   Ev 48 Back

68   Q 153 Back

69   Ev 36 Back

70   Q 67 Back

71   Q 23 Back

72   Q 25 Back

73   Ev w12 Back

74   Ev w3 Back

75   Ev 29 Back

76   CBI (Ev w1); CIPA (Ev 39); IPLA (Ev w3) Back

77   Q 50 Back

78   Ev 48 Back

79   Ev 39 Back

80   Q 64 Back

81   Ev 36 Back

82   Q 84 Back

83   Q 78 Back

84   Ev 39 Back

85   Ev 39 Back

86   Q 51 Back

87   Ev 51 Back

88   Ev w12 Back

89   Ev w12 Back

90   Ev w12 Back

91   Q 7 Back

92   Q 77 Back

93   Q 7 Back

94   Ev 51 Back

95   Q 7 Back

96   Ev 39 Back

97   Q 90 Back

98   Q 85 Back

99   Ev 45 (CIPA) Back

100   Ev 48 Back

101   Q 155 Back

102   Ev 29 Back

103   Ev 45 (CIPA) Back

104   Q 31 Back

105   Q 31 Back

106   Ev 39 Back

107   Q 31 Back

108   Q 26 Back

109   Ev 39 Back

110   Q 31 Back

111   Q 151 Back

112   Q 31 Back

113   Q 31 Back

114   Ev 39 Back

115   Ev 29; Ev 39 Back

116   Ev 48 Back

117   Ev 48 Back

118   Ev 48 Back

119   Ev 48 Back

120   Ev w11 Back

121   Ev w11 Back

122   Ev w11 Back

123   Q 33 Back

124   Ev w11 Back

125   Ev 51 Back

126   Q 157 Back

127   Q 156 Back

128   Ev 51 Back

129   Ev 51 Back

130   Ev 51 Back

131   Q 33 Back

132   Q 156 Back

133   Q 33 Back

134   Ev 48 Back

135   EPLAW (Ev 29); CIPA (Ev 39) Back

136   Ev 39 Back

137   Ev 48 Back

138   Q 126 Back

139   EPLAW (Q 41); Henry Carr QC (Ev 36); Q 1; Q 3 Back

140   Ev 36 Back

141   Q 41 Back

142   Q 5 Back

143   Ev 36 Back

144   Ev 39 Back

145   CBI (Ev w1); IPLA (Ev w3); Henry Carr QC (Q 4) Back

146   Ev 29 Back

147   Q 142 Back


 
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© Parliamentary copyright 2012
Prepared 3 May 2012