The European Union is closer to adopting a unitary patent system, together with a unitary patent court. But as Jane Hollywood and Robert Stephen discover, some EU countries still need convincing of their merits

A single patent that covers all of Europe has been a goal for more than four decades – and now with the unitary patent, we are almost there. The unitary patent and unified patent court (UPC) will have a significant impact on the litigation landscape and patent filing strategies in Europe.  

The main aim behind the development of the unitary patent system is to make Europe more competitive with the US and China, by reducing the cost of obtaining patent protection and also enforcing patents.  

Under the current system, a patent obtained via the European Patent Office (EPO) is in effect a bundle of separate national patents. There are fees and translation costs for each of these patents, meaning costs could go up to £200,000. In contrast, there are no validation costs in either the US or China and renewal fees are less than £10,000 (over the life of a patent). This disparity has led to sustained criticism of the European patent system and has been a major motivating factor for development of the unitary patent.

Furthermore, in Europe enforcement is pursued at the national level and so a patentee can be faced with a number of parallel proceedings, which are expensive and can lead to in inconsistent results between countries. A cheaper and more uniform system is therefore highly desirable. 

Road to a unified system

The unitary patent is a single patent to cover all EU member states, except Italy and Spain, which are currently refusing to sign the unitary patent agreement and therefore are not included (the compromise required on language was a step too far). 

Protection in these countries will therefore have to be sought nationally or by validating in Italy and Spain following grant of a patent by the EPO. Spain has also opted out of the UPC.

The unified patent will be granted by the EPO, which will also continue to grant 'classical' European patents that become a bundle of national patents.

The UPC is a single court which will ultimately have jurisdiction over all patents granted by the EPO in all EU member states except Spain (and possibly Poland, which has also not yet signed the UPC agreement). During the seven-year transitional period, patentees who obtain grant of a patent at the EPO will be able to opt in and out of the UPC's jurisdiction. 

When will it happen?

The unitary patent regulations are in force and the UPC agreement has been signed, but neither will take effect until four months after 13 EU member states ratify the UPC agreement. The current aim is for the first unitary patent to be issued by April 2014 and it will be possible to enforce patents granted by the EPO at the UPC as soon as it is operational, so both could be in full swing by the end of 2014.

Applicants are faced with important strategy choices. For the first time, decisions made early on in the patent application process will affect which court system is used for enforcement. The options are to: 

1. file nationally, in which case the national court will have jurisdiction; 

2. file centrally at the EPO and elect a unitary patent and therefore the jurisdiction of the UPC; or 

3. file centrally at the EPO and elect the 'classical' route of a bundle of national patents, and then decide whether or not to opt out of the UPC.  

When planning a filing strategy in light of these changes, the two main issues for an applicant to consider are cost and risk.  

Cost and risk issues

The main cost considerations are translations, renewal fees and potential litigation. Translation costs for the unitary patent should be low, with the intention being to ultimately use machine translations. An annual fee schedule is not yet available, but there have been rumours of it being equivalent to renewing a patent in between five to eight European countries. If this is true, it is easy to envisage circumstances where a unitary patent will not be the most cost effective approach.  

It is possible there will be reduced fees for small companies (akin to the small entity fees in the US) and this would certainly be a welcome move to encourage use of the unitary patent. It is not yet known if there will be a fee for opting out of the UPC's jurisdiction.  

The cost of litigation at the UPC will be cheaper than pursuing multiple parallel proceedings across Europe, and this will appeal to some companies, but for others the risk will outweigh any cost benefit.

The road to the unitary patent and the UPC has not been a smooth one. Court jurisdiction and location have also been among the hard fought battles. There is significant concern regarding the risk of losing protection across all of Europe in one action and in front of a court that does not have the level of experience of national courts in the UK or Germany, for example, which regularly hear complex patent cases.  

In an attempt to alleviate these concerns, the UPC's central division will be located in Paris, with thematic seats in London and Munich. There is also the possibility of local and regional divisions throughout the participating states.  

The rules governing selection of a division for an action are complex, in practice meaning a wide choice for patentees, which has led to concerns of forum shopping. In addition, the agreement allows for an infringement action to be handled by a local or regional division and validity by the central division, potentially in different languages. Some patentees believe this will lead to increased injunctive relief on patents later found to be invalid. 

There are also a number of other concerns surrounding the proposed procedure before the UPC, including emphasis on written cross-examination rather than oral, lack of discovery and one day trials.  

Industry differences

In the pharmaceutical industry, enormous value is often attached to one patent and the risk of losing protection across Europe as a result of a one-day trial with no oral cross-examination and little discovery will be too great for many companies.  

In addition, it is not clear how the highly valuable supplementary protection certificates, which provide up to five years' extra protection on marketed drugs, will be handled. But there will be significant savings in electing the unitary patent for a pharmaceutical company interested in protection across most of Europe.  

Companies could therefore consider electing the unitary patent for less critical cases and benefit from the cheaper filing costs. But they could continue with the classical route of a bundle of patents at the EPO and opting out of the UPC and/or pursuing protection directly at the national level for the most important patents.  

High-tech companies have historically pursued smaller territorial coverage than pharmaceutical companies and the unitary patent is therefore unlikely to appeal as a filing strategy, at least for now. 

However, infringement actions are more commonplace in the high-tech field (compared to the pharmaceutical industry proceedings, where revocation actions generally drive cases) and therefore, companies in this industry may experience the UPC sooner rather than later. The default position in both industries will probably be to opt out of the UPC until there is more certainty on how it will operate in practice.  

For the very reasons that certain companies will seek to avoid the UPC's jurisdiction, it will appeal to others. A successful central attack against a patent covering a number of European territories is clearly a very cost effective manner of clearing the way for freedom to operate and the balance of possible reward versus cost will be attractive to some patentees.  

This is likely to include non-practising entities (NPEs) whose business model is to threaten patent infringement actions as leverage to obtain either licence fee or settlement payments.  

Traditionally, these entities have operated mostly in the US, avoiding the more expensive and complex European court systems. But the new possibility of a central attack and pan-European injunction, which could shut a company out of the European market, is likely to be attractive to NPEs.  

Uncertain future

We are the closest we have ever been to a European unitary patent, but there are still a few possible flies in the ointment. There is ongoing lobbying of the UK Government to consider the economic impact of the unitary patent system on the UK more carefully, and also for greater clarity on the rules of procedure of the UPC.  

At this stage it seems unlikely, but, should the UK Government not ratify the UPC agreement, it will not come into force (France, Germany and another 10 EU states must also ratify it). In addition, Spain has two challenges against the unitary patent regulations pending at the Court of Justice, although it is also unlikely that these will be successful.

Provided the unitary patent and UPC do come into force as anticipated, they will change patent practice in Europe significantly and companies need to think early about their patent filing strategies and the post-grant enforcement implications.  

A more integrated approach to advising clients on their portfolios is clearly becoming increasingly important, with patent attorneys working closely with solicitors to give the best advice.

Recent commentary on the unitary system has generally been more negative than positive, but the concept of cheaper and harmonised protection across Europe is certainly a good one. The system will only be able to develop and iron out uncertainties if it is used and we hope that this will happen over the next decade.

Jane Hollywood is a patent lawyer and Robert Stephen is a partner at Olswang.