The UPC and licensing

Executive summary

It is expected that the Unified Patent Court (UPC) and the European Unitary Patent will start in early 2018; a sufficient number of Member States are working on ratification of the underlying Agreement for this to happen. The sunrise period when patentees may register “opt-outs” will start late 2017.

Although it is patentees who may register opt-outs, it will frequently be licensees who have the main interest in whether or not the patents should be opted out. The same is true of the decision whether on grant to designate a patent as a bundle patent in a limited number of countries or as a Unitary Patent, effective across most of the EU.

Licence agreements will accordingly need to address these and other related issues arising from the Unitary Patent and the UPC.

This paper addresses how the relevant decisions and functions might be divided between licensors and licensees.

The decisions

For the first seven years of the court’s operation (starting during the preparatory “sunrise” period, and extendable by a further seven years), conventional European “bundle” patents can be litigated either, as now, separately in the national courts, or, as a bundle, in the UPC. However, patentees may opt out from the UPC so their patents can be litigated only in the national courts. This protects these bundle patents from central attack by a competitor (either revocation or a declaration of non-infringement).

When a European Patent is granted, the patentee decides in which countries it is to be validated. From the date when the UPC opens for business, it will be possible to designate a patent on grant as a Unitary Patent effective across most of the EU, instead of as a number of separate patents in a limited number of countries. A Unitary Patent can be litigated only in the UPC.

Licence agreements will accordingly need to address the following new issues:

• Who decides whether, on grant, a patent is designated as a Unitary Patent or a bundle patent (and if the latter, in which countries should it be validated)?
• Who decides whether a bundle patent should be opted out (both those existing when the sunrise period starts and those granted thereafter)?
• Who is responsible for registering the opt-out?
• Who pays?

Most licences will specify who has responsibility for prosecuting patents, and this will include who has the decision about which countries a European patent will be validated in on grant. Such draft provisions can be modified to refer expressly to the decision whether instead the patent should be designated as a Unitary Patent.

Current precedents are less likely to contain provisions which can be adapted to deal with the opt-out, and new provisions will need to be negotiated. The position reached in respect of the opt-out may depend on a number of (possibly connected) factors, including:

• whether the relevant patents are licensed on an exclusive or non-exclusive basis: an exclusive licensee is more likely to require control over prosecution and enforcement of the licensed patents given that only it can exploit those patents and arguably could incur the most significant loss in the event of an issue with the patents
• whether the licensee is the only licensee in respect of the relevant patent: if the relevant patents are licensed to multiple licensees (whether on a non-exclusive basis or an exclusive basis (eg in respect of different indications)), the licensor may require control over the decisions, as any decision will affect its other licensees
• who is responsible for otherwise prosecuting and maintaining the licensed patents: this entity is likely to have access to the relevant information required to file the opt-out paperwork, and
• whether one party has any specific reason to want to control whether the UPC has jurisdiction.

There are no official fees to opt-out and generally, we would expect that the party who decides to opt-out of the UPC will pay any related costs of doing so (unless that party is in a particularly strong negotiating position).

In addition to agreeing the above points, the parties will also need to consider and agree the position on:

• The withdrawal of an opt-out request: ordinarily, one would expect that the party which decides whether to opt out would also have the right to decide to withdraw. However, the parties may wish to negotiate this in order to provide a party with a form of ultimate veto in the event that it has specific concerns regarding opting in or if circumstances change significantly following the request to opt-out.
• Supplementary Protection Certificates (SPCs) granted in respect of an “opted-out” patent: if SPCs have been granted at the time of opting-out, the holders of all SPCs and all proprietors of the patent will need to agree and apply to opt-out together in order for the application to be effective (see below). Further, once the bundle patent and any existing SPCs are opted-out, any SPC subsequently granted in respect of that patent will automatically be opted-out. If the SPC holders fail to cooperate, the patentee may be prevented from opting out the relevant licensed patents.
• Collaboration concerns: where parties are collaborating to develop new patentable inventions, in addition to considering the usual points on who will decide when/what to file in a patent application and who will prosecute and enforce that patent, the parties will also need to govern how the above new issues will be decided. In addition, where the collaborators will co-own the patent, thought will now need to be given to the order in which the owners are listed on the patent. This is because the nationality of the first named applicant will now determine the applicable law governing the patent as an item of property , which will determine procedures and permissions for assignments, licences and using the patent as security for borrowing.

Whatever position is adopted, the parties will need to ensure that this is reflected in their existing, and any future, licensing arrangements they enter into.

Making an application to opt-out

Importantly, only the patent proprietor can file an opt-out application. If there is more than one proprietor (either because of co-ownership or because the national patents in the bundle have been assigned to different companies), all of the proprietors must apply together, and if any SPCs have been granted in respect of the patent, then all holders of SPCs and all proprietors of the patent must make the relevant application .

In some cases this may result in significant difficulties in effecting an opt-out, even if both licensor and licensee agree that opting-out is the preferred approach.

If a licensee wants to have the ability to determine whether “bundle” patents should be opted out, and whether new patents on grant should be unitary or “bundle”, it will need to cover this as part of the usual prosecution and maintenance clauses in the licence agreement. It may also wish to include:

• A robust further assurance clause obliging the licensor to liaise with other co-proprietors and/or related SPC holders to procure any necessary action if an opt-out has been decided.
• Warranties from the licensor that it is in fact able to opt-out and that all necessary information required to effect that opt-out are in its possession. For example, a licensee may seek to include warranties that (i) the licensor is the sole proprietor of the patent, or it has procured the consent of any other co-proprietor; (ii) the licensor is in possession of the requisite details for each proprietor and the patent(s) in order to effect the opt-out request. This could be particularly important given that an error on the opt-out request will result in the request being ineffective until the error is corrected (ie pending correction, the relevant patent remains subject to the UPC’s jurisdiction).

In cases where there is more than one proprietor or SPC holder, the parties will also need to contemplate the “nuclear” position, where the other proprietor(s) and/or SPC holder(s) refuse to agree to apply to opt-out the relevant patent/SPC, and how this will affect their ongoing licensing relationship. This could be as simple as ensuring that a non-exclusive licence clearly states that the licensee cannot bring action in its own name contrary to Article 47(3) of the Agreement on a Unified Patent Court (if that is what has been agreed by the parties) or could have more far reaching consequences if its inclusion in the UPC’s jurisdiction would have significant implications for the validity, cost or enforceability of the licensed patents.

Timing and “pinning”

According to the UPC Agreement, the right to opt-out can be exercised at any time during a transitional period of seven years from the date when the Agreement enters into force (expected to be in early 2018), until one month before the expiry of the transitional period. The transitional period may be extended by a further seven years.

An opt-out will be ineffective if, when it is registered, the patent is or has been the subject of litigation in the UPC. In order to protect opt-outs being stymied by revocation actions or applications for declarations of non-infringement being filed on the day the court first opens, opt-out applications may be filed during a “sunrise” period which is expected to commence in late 2017. Licensing parties should not delay in starting discussions regarding their proposed approach towards opting out the licensed patents.

If any of the national designations of an opted-out patent has been the subject of any national proceedings in countries over which the UPC also has jurisdiction, whether before or after the opt-out was registered, then the opt-out may not be withdrawn, so that all national designations of the patent are excluded for their lifetime from the UPC’s jurisdiction - they are “pinned” in the national systems.

Right to litigate

The holder of an exclusive licence may take action to enforce a licensed patent unless the licence agreement provides otherwise.

The holder of a non-exclusive licence may take action to enforce a licensed patent if expressly permitted by the licence agreement. Under existing national laws, this is possible in some but not all countries (it is not possible in the UK, for example).

Accordingly, the licence agreement, even if non-exclusive, needs to govern the right to take action to enforce the licensed patents. The conduct of litigation is covered in most well-drafted licence agreements and companies will already be familiar with the factors to be taken into account. One new consideration, however, is “pinning”: action taken by a licensee in the UPC will prevent an opt-out, and action in a national court after an opt-out will “pin” all designations of the patent in the national system, which may not be to the liking of other licensees, or, indeed, of the proprietor.

Existing agreements

Existing licence agreements will not provide for the new issues arising from the advent of the UPC and Unitary Patent. They are however likely to contain provisions governing prosecution of patent applications and conduct of litigation which, depending on the detailed drafting, may be applicable to the new circumstances. The decision between unitary or bundle on grant of a European Patent is likely to be covered by “control of patent prosecution” clauses, as indicated above. Depending on drafting, the opt-out could be treated as an aspect of post-grant prosecution, akin to registering a change of address or a licence. It might alternatively be covered by provisions governing litigation - the registration of the opt-out is with the court not the EPO - and might be akin to the filing of a protective letter in Germany or the Netherlands.

Even if the licence agreement contains no helpful provisions, most well-advised licensors will be willing to engage with their licensees in relation to a decision which, in business sectors where patent litigation is common, could be important.