In the first of a series of articles looking at hypothetical scenarios involving the UPC, Wouter Pors considers a case involving an implementation patent in the electronics industry.
The Unified Patent Court (UPC) will open for business within a year. It is now time to discuss how a real life case will most likely be handled and what strategy the claimant could follow.
THE SCENARIO: AN ELECTRONICS PATENT
This case is about an electronics company that manufactures hardware. It is headquartered in Europe and has invested in substantial R&D facilities to develop its products. The company is the owner of a traditional European patent that protects a feature of one of its products. It is a so-called implementation patent, meaning that it is not essential for any technical standard. However, the feature is highly appreciated by consumers and is expected to contribute to strong sales of the product for at least the next five years. The language of the patent is English.
The patent was granted quite recently. No oppositions have been filed yet, but the deadline is still running. It has been validated in several EU countries including the UK, Germany, The Netherlands, France, Italy and Spain. It has not been opted out of the UPC jurisdiction.
A competitor is manufacturing devices in Germany which are believed to infringe the patent, and may be exporting to other countries in Europe. As is often the case with electronics products, it is quite complicated though not impossible to establish whether this product applies the patented feature. The competitor has a patent portfolio of its own, and is not averse to IP litigation.
Choosing the forum
The first question for the claimant in this scenario (see box below) is whether to use the UPC or choose national courts and maybe even opt-out the patent from the UPC jurisdiction to avoid a central attack on validity. During the seven-year transitional period (which will almost certainly be extended to 14 years) actions relating to traditional European patents can be brought before both the UPC and the national courts, unless the patent has been opted out of the UPC jurisdiction by its proprietor. Unitary Patents can only be litigated before the UPC.
The defendant in our scenario is based in Germany and on the market in that country. Going to a German national court of course has the advantage that this is a bifurcated system where the validity action is much slower than the infringement action. Since this is an implementation patent, an injunction should be available under the German national system before the validity of the patent is decided. However, since the feature is not covered by a technical standard, proof of infringement might be difficult. Discovering whether the patented invention is actually used in the product may not be possible through reverse engineering, especially if the same outcome could be achieved by different technical solutions. In the UK disclosure might come to the rescue, but the results of that normally cannot be exported to litigation in other countries.
If you do want to bring the infringement action in a national court, it is wise to opt out the patent from the UPC jurisdiction. Otherwise, the defendant may decide to bring a revocation action before the UPC by way of counter-attack, instead of a counterclaim for invalidity in the national court (or, in the bifurcated countries Germany, Austria and Hungary, in a separate national action). Under Articles 30 and 71c of the Brussels I Regulation the two actions most likely qualify as related actions, but in that case the Central Division of the UPC is not obliged to stay the revocation action, even though it is not the court first seized. Since it makes sense to decide validity before infringement, the Central Division is even likely to pursue the action. For instance, if the infringement action is brought in the Düsseldorf Court, a revocation action before the UPC would probably be equally fast, whereas such an action before the Bundespatentgericht would be much slower. Therefore, you may lose the advantage of German bifurcation if you do not opt out the patent before starting the infringement action. In this scenario, you do not want to warn the defendant before you have filed the opt out; otherwise he might launch a pre-emptive strike at the UPC Central Division, which will also block the opt-out.
Looking at the national courts, the German courts in our scenario would have the advantage of bifurcation. The UK courts would offer disclosure. Collecting evidence through a special seizure would be possible in at least The Netherlands, France, Italy and Belgium, and these countries all have judges who are experienced in patent litigation. However, these actions would not produce a cross-border injunction in this case.
If you go to the UPC and an injunction covering Spain is essential, that would still require a separate Spanish action. However, it may be wise to only start that once the UPC has rendered its judgment at first instance.
Couleur locale in local divisions
The UPC of course is a single court, with one set of procedural rules, but it will have a considerable amount of local and regional divisions across its 25 contracting member states, which will handle infringement cases and counterclaims for revocation. The judges of those divisions will at least at the start be part-time UPC judges and part-time judges in the national courts of their countries of origin. If a country on average handles at least 50 patent cases per year in its national courts, the panels of the UPC local division in that country will consist of two judges from that country and a judge from the central pool of UPC judges. Since these judges are also judges in their national courts, this means that at the beginning there will be a lot of couleur locale in the local divisions, certainly in those that have two national judges on each panel. As members of a UPC panel, the judges will of course have to apply UPC substantive and procedural law. However, UPC law allows for a lot of flexibility, meaning that local divisions can choose an approach which is quite close to the way patent actions are handled in their national courts. Since the UPC judges are also judges in their national courts, they are likely to apply the UPC laws in the same way they apply national law where there is sufficient flexibility to do so. Over time the UPC Court of Appeal will set rules and best practices, but certainly at the beginning there will be a lot of this couleur locale.
Going back to our scenario, the first thing to note is that the UPC has no automatic disclosure like UK national law. Therefore, this will not be an instrument available to establish infringement, so it's not a factor in choosing a division. Given the difficulties in establishing infringement as mentioned above, the claimant may want to go to a division where the judges have a lot of experience with the orders to preserve evidence (saisie) of Rule 196 of the Rules of Procedure, such as The Netherlands, France, Italy or Belgium. The alternative would be to go to a division with a lot of experience in hearing experts and cross-examination of witnesses, such as the UK division.
The UPC Agreement (UPCA) does provide for the possibility of bifurcation, by allowing the local and regional divisions to refer a counterclaim for revocation of a patent to the central division. This has caused a lot of concern, but it is unlikely to happen at all. German judges have explained that they only bifurcate because their national law simply does not provide the district courts with jurisdiction over validity. So, bifurcation most likely is not a reason to select a specific division.
A division is competent to hear an infringement action if the defendant is based in its country (or region), if the actual infringement has occurred in its jurisdiction or if there is a threat of infringement in its jurisdiction. In our case, the defendant is based in Germany and is infringing in Germany, so the German divisions have competence to hear the case. The UPC rules do not specify whether there needs to be actual proof of a threat of infringement to create competence. Under Dutch law for instance, jurisdiction is based on the allegations in the statement of claim. If the court doesn't find infringement, that doesn't affect jurisdiction, but the court will of course deny the claims. Therefore, it seems likely that the Dutch local division will accept competence based on an allegation of a threat of infringement in the statement of claim without actual proof, but this may be different for other divisions.
However, there is also another important factor in choosing a forum, namely the language regime. In our scenario, the language of the patent is English. Since this is an electronics invention, most likely all relevant literature and prior art will be in English and the client's R&D staff will most likely be used to working in English. The claimant chooses the language of the litigation from those available in the division of his choice. Local divisions support litigation in the national languages of their country and may elect to also allow litigation in one or more of the languages of the European Patent Office (English, German and French), regional divisions may even choose to have only one or more of the EPO languages. Most local divisions allow litigation in English next to national languages and the Nordic-Baltic regional division even has English as the only language. Until now, it seems that only the Paris and Milan local divisions will not allow litigation in English. The German local divisions do, but judges from Düsseldorf have claimed that they will apply the so-called English limited rule (Rule 14.2(c)), meaning that German can be used during the oral hearing and the judgment may be issued in German. On the other hand, this is unlikely to happen in the Munich local division, which will stick to English if that is the language chosen by the claimant.
An issue that is often raised by clients in the preparation of patent litigation is whether courts will favour a defendant based in their country, especially if the defendant is an important employer. However, the most important and experienced patent courts in Europe do not apply such a bias; they are neutral. Actually, that is one of the reasons why they are chosen for multinational patent litigation. Judges on the UPC will function in a truly international environment. They will have applied for that position because they are interested in becoming part of this. It has been my experience during the educational programme that this also applies to those candidate judges that have little experience in patent law (because there isn't much patent litigation in their country of origin). Besides, cases will always be adjudicated by multinational panels. In my view, it is therefore highly unlikely that there will be any home advantage in any UPC division.
If an infringement action is started, there will most likely be an attack on the validity of the patent. In our scenario, no opposition has been filed yet, but the deadline is still running. If the infringement action is started before the deadline expires, it is quite likely that the defendant will file an opposition. Normally it will take considerably more than a year to conclude an opposition, whereas the UPC Rules of Procedure have been tailored to allow for a final judgment in first instance in around one year. Article 33(10) of the UPC Agreement (UPCA provides that an action before the UPC may be stayed when a rapid decision may be expected from the EPO (in first instance or on appeal). The idea is that a stay should be the exception, because achieving a judgment in around a year is a top priority. Rule 295(a) repeats Article 33(10) UPCA. Rule 118.2(b) adds that in such case a stay may be granted if the division finds it highly likely that the patent will be held invalid in opposition.
The UPC itself can also decide on validity and will do so in first instance in around a year. Therefore, an infringement action will almost certainly lead to a counterclaim for invalidity, which under Article 33(4), second sentence, has to be brought before the local or regional division where the infringement action is pending. That division may then bifurcate the case and refer the claim for revocation of the patent to the central division, but as mentioned above, this is highly unlikely. If the counterclaim for revocation is kept by the division that handles the infringement, it may ask the President of the Court of First Instance under Article 33(3)(a) to add a technically qualified judge with qualifications and experience in the field of technology concerned. Under Rule 33 the parties may also request the judge-rapporteur to ask for this. The technology involved in our scenario is likely to be quite complicated, so a technical judge with the right qualifications and experience would be quite useful. Since the UPC covers such a large area, it can afford to have many (part-time) technical judges, covering a lot of specialisations. This certainly is an advantage over national courts.
Which claims should be lodged?
Since the action relates to an implementation patent and not to a standard essential patent (where the options would be more limited due to the judgment of the Court of Justice of the European Union of 16 July 2015 in Huawei v ZTE, C-170/13), the normal main claim would be for an injunction against the infringing product. Article 63 UPCA states that the UPC may grant an injunction, which seems to leave a lot of room for discretion, but Article 25 UPCA basically provides that a patent shall confer on its owner the right to stop infringers, meaning that injunctions should be available except for exceptional circumstances. This was indeed confirmed in Huawei v ZTE for patent law in general. In our scenario, since this is an implementation patent, the UPC will very likely render an injunction against infringement if it finds the patent valid and infringed. That injunction will cover the whole UPC jurisdiction and will probably be worded quite broadly, meaning that it does not only cover the exact product that was the reason to bring the action, but also other products from the defendant that would infringe the same patent claim in the same way (as opposed to the often more narrowly worded injunctions granted by German national courts).
Of course, other remedies are also available, including damages. However, the system is designed to render judgment in around a year on infringement and validity, including injunctions, but not on damages. In most situations the calculation of damages will be rather complicated and will require additional evidence. Therefore, Chapter 4 of Part I of the Rules provides for separate proceedings after infringement was found, in order to establish the amount of damages. In a simple case, the damages may also be assessed in the first judgment (under Rule 118). However, in a scenario such as this one, it is highly unlikely that the calculation of damages will be sufficiently simple. Besides, most electronics patent owners will prefer to rely on an injunction and will then aim at resolving the case in direct negotiations. Actually, if the parties don't manage to achieve that on their own, the UPC even offers mediation and arbitration under Article 35 UPCA.
The relevant timelines for the action
The first thing to note is that, as in any patent case, the claimant can take his time to prepare the action. Of course, these preparations should be kept confidential, since the targeted company could otherwise start a revocation action before the central division first. Fortunately, the UPCA does not require any pre-trial letters; Rule 61 of the Rules of Procedure only requires this in case of an action for a declaration of non-infringement.
Litigation before the UPC consists of three stages: the written procedure, the interim procedure and the oral procedure. Once the action has been filed in court, all the deadlines in the written procedure are short and fixed, with very little possibility for extensions. On the basis of Rule 9.3(a) and 334(a) the judge-rapporteur may extend the deadline for filing any written submission, but since the aim is to conclude the action within around one year, this will most likely only happen in exceptional circumstances.
Rule 19 provides that within one month of service of the statement of claim, the defendant can file a preliminary objection. This will probably slow down proceedings, because in such a case the judge-rapporteur may extend the period for filing the statement of defence under Rule 19.6, for instance if he thinks the objection has merit. The judge-rapporteur will decide the objection within a few weeks, but this may be appealed. One of the limited grounds is an objection against the competence of the division chosen by the claimant. Therefore, in our scenario, if it is hard to prove a threat of infringement in other countries, and time is of the essence, the safe choice would be to bring the infringement action before a German division. After all, at the start of the Court, it will still be unclear what the requirements for a threat of infringement will be, meaning that actual infringement is a more solid basis for competence.
The interim procedure, which is used to prepare the case for the oral procedure, basically takes no more than three months (Rule 101.3). The judge-rapporteur will summon the parties for the oral hearing, which requires at least two months' notice (Rule 108). Rule 113 states that the presiding judge shall endeavour to complete the oral hearing within one day. However, in more complicated cases, that does not seem to be feasible and divisions where the judges are used to much longer hearings, such as in London, will probably take more time. In our scenario, where hearing experts and cross-examination of witnesses might be necessary to establish infringement, the oral hearing may be divided into sub-hearings. There may for instance be some hearings with the experts and the witnesses, followed by a one-day hearing for closing arguments. The UPC will normally render a judgment on validity and infringement within six weeks of the oral hearing (Rule 118.6).
Risks and benefits
If cross-border injunctions are needed, the UPC is clearly the preferred court. Evidence of infringement or a threat of infringement in one country basically is sufficient to get an injunction for 25 countries. Of course, the risk for the proprietor is that his patent is invalidated in one action. The advantages will outweigh this in many cases, especially where there would be real difficulties to overcome in national courts.
The costs of such an action are not clear yet. It is likely that the legal fees will be more than for an action in Germany or The Netherlands, but probably less than for an action in the UK courts. Even if cross-examination of witnesses is needed, this should normally apply. Whether those costs can be recovered in full still remains to be seen, as this is one of the outstanding issues in establishing the final version of the Rules of Procedure. Besides, a case on the legality of ceilings for recoverable costs under the Enforcement Directive is pending before the Court of Justice of the European Union (United Video Properties v Telenet, C-57/15).
Nevertheless, the UPC is going to provide a ruling on the merits on infringement and validity by experienced patent specialist judges within around one year for a reasonable amount of costs. The system has a lot of flexibility and there are many options to consider, of which I have discussed some of the major ones for our scenario of infringement of an electronics implementation patent. At the same time, it is clear that this requires experienced and knowledgeable representation.
*First published on MIP on 26 January 2016