UPC: Preparing for the Sunrise Period


This article was first published in Who’s Who Legal, June 2016
On the day that the Agreement on a Unified Patent Court (UPCA) comes into force, all designations of existing European patents validated in countries that have ratified the UPCA will, by default, become subject to the jurisdiction of the new court. Absent any last-minute glitches – notably a possible vote for Brexit – this is expected to happen in spring 2017. However, during the few months leading up to this happening (the “sunrise period”), it will be possible for patentees to request that any of their existing European patents be opted out of the new system. We look at the process for deciding and implementing an opt-out strategy, and encourage our readers to start the process immediately in order to be ready for the sunrise period and ultimately for the new court.
What is the sunrise period and when is it going to start?
The UPCA was, somewhat unfortunately, drafted in such a way that it comes into force with all its facilities and staff in place, with no pre-opening start-up phase. The month after signature, a preparatory committee was formed to take steps toward the establishment of the Court, and has been working for over three years, now. However, it has no legal standing, and cannot, for example, employ judges. Hence, in October 2015, a Protocol to the UPCA was signed which allows for certain parts of the UPCA to be applied provisionally before the UPCA comes into force. The period of provisional application is known as the “sunrise period”.
The sunrise period will start the day after at least 13 UPCA signatory states (which must include Germany, France and the UK) have:
• signed the protocol (or declared that they consider themselves bound by the provisions referred to in the protocol); and
• informed the depositary that they have received parliamentary approval to ratify the UPCA (or have already ratified it).
The additional steps required for the UPCA to come fully into force are actual ratification by the states (13 at least) and the deposit of their instruments of ratification in Brussels. The UPCA provides that the UPC then comes into force on the first day of the fourth month after the deposit of the final necessary ratification – in practice, probably by the UK or Germany, who are expected to ratify later in 2016 but also to delay deposit of their instruments of ratification until it is clear that everything will be ready at a practical level for the UPC to open for business. Absent a vote for Brexit, the sunrise period is expected to start in autumn 2016, with the UPCA coming into force in spring 2017.
How does the sunrise period affect patentees?
By default, when the UPCA comes into force, all current European patents, which are validated in countries that have ratified the UPCA, will automatically become subject to the jurisdiction of the UPC. So too are pending European patent applications and supplementary protection certificates (SPCs) based on European patents. This means that the day that the UPCA comes into force, it will be possible for third parties to file for central revocation and seek central declarations of non-infringement.
During an initial transitional period of seven years from the date the UPCA comes into force, any current or pending European patents and SPCs can be opted-out of this new system (this opt-out to last for the life of the patent/SPC). However, in order for a patent to be opted-out, the opt-out must be registered at the Registry. Allowing the Registry to come into existence for the sunrise period gives patentees the opportunity to pre-file opt-outs, and for the Registry to register them before cases can be filed. Without the sunrise period, the Registry would not have existed to receive opt-outs and would have had no time to register what might be expected to be possibly hundreds of thousands of opt-outs before the first UPC cases were filed.
Patentees can continue to submit opt-out applications after the UPCA comes into force, until the end of the transitional period, but that will be at their risk. In particular, if a UPC case is brought before an opt-out is entered on the register, this will block any opt-out.
Making the decision about which patents to opt-out
There are many strategic considerations for companies to consider when deciding whether to opt out or not. Indeed, companies must first understand the impact of opt-out or staying within the jurisdiction of the new Court and resultant implications for any future litigation. This is not straightforward as we mention briefly below.
Looking at the broad strategic approaches, one “easy” approach is to opt-out nothing and embrace the new system. This should in principle give companies an opportunity not only to assert patents and potentially obtain injunctions on a pan-national basis (a powerful business tool), but also to shape the case law and to gain useful experience of using the new system in preparation for a time when opting out is not an option. However, there are hidden traps in the option of not opting out of the system. The jurisdiction of the UPC in the transitional period is not exclusive, but shared with national courts, meaning (put very briefly – the detail is outside the scope of this article) that patents “in” the UPC system are susceptible to pre-emptive national actions for revocation which may torpedo the ability of the patentee to use the UPC. Hence, there could in many cases be a race to the courts.
Another “easy” approach is to opt out everything and wait to see what happens from the outside. This will provide patentees with certainty as they will continue to litigate in the way they always have done with the comfort that any revocation action (other than an EPO opposition) will only have an effect on a national basis. As long as no national actions have been brought in the interim, they will also be able to opt-in again when they decide the time is right. There is no upfront fee for opt-outs to deter companies from doing this, but as set out below, there will be significant time and resource costs of making the opt-outs.
Rather than a blanket policy, another option is for patentees to carry out internal due diligence in order to make the opt-out/stay in decision on a patent-by-patent basis, to ensure the company is in the best position for the future. In an ideal world, this should include considering the following questions:
• Are the patents ever likely to be litigated, or are they purely defensive? If there is no real chance of litigation, then why even consider going to the trouble of opting them out? However, such assessment is itself not always straightforward.
• Is the patent under opposition? If so, it would seem quite likely that it would also be the subject of a central revocation action in the UPC.
• What does the patent protect, ie, what is the value of the patent to the business/future business?
• Is the patent part of a portfolio relating to a particular product, some of which could be kept in and some opted-out, so as to share patents between the new system and the old?
• Is there likely to be significant infringement in a country where it is traditionally difficult to obtain injunctive relief, such that the UPC may be preferable?
• Is the patent generating licensing income such that if revoked centrally it would cause a significant financial loss?
If a particular patent is protecting the crown jewels of a business, then very careful consideration is obviously worthwhile, including assessing its strength. Absent any other considerations, a company might decide to play safe and keep it out of the new system. However, if that patent is known to be a very strong patent and difficult to design around, then patentees might decide to take the risk in return for the prospect of pan-European relief. Similarly, if it is only one of a portfolio of patents which protect the crown jewels, such that the company can afford to risk one in the new system, this may tip the balance away from an opt-out.
Administrative steps to enable opt-out
The uninitiated might think that making the decision about which patents to opt out is the difficult step, and that the administrative steps will simply follow after that. But, in practice, there are several administrative hoops that patentees will need to jump through before they are opted-out. This makes it imperative that patentees make their opt-out decisions as soon as possible, such that they can finalise the administrative steps and effect registration in the sunrise period. What is more, the stakes are high, as an error in the opt-out process could result in the opt-out not being entered on the register, or being challenged once the UPCA comes into force, potentially giving a challenger the opportunity to file a central revocation action before mistakes can be rectified.
The basic rule is that the opt-out must be made by all proprietors. However, the following points should be kept in mind:
• Who are the proprietors? The application must be made by the true proprietors of the patent, which will not necessarily be the registered proprietors, especially when patents have been purchased from a third party. Ownership should be checked, although there is no necessity to update/correct registers.
• Is there more than one proprietor? Since the application must be made by all proprietors/applicants, it will be necessary to have all join in the application. Pertaining to this, the following requirements must also be met: all proprietors of all relevant designations must be included. Relevant designations for this purpose includes designations in states which have signed the UPCA, even if they have not ratified it at the time of opt-out; some patentees have a single proprietor for all designations, but others put ownership in different companies within a group; and there may be cases of co-ownership, such as with universities.
Especially in cases where the co-proprietors are not group companies, it is essential to contact the other proprietors and ensure all agree on opt-out strategy, and that the correct authorisations/appointment of representatives are in place to effect an opt-out.
Hence, for companies with more than a handful of patents, it will be necessary to set up sophisticated internal processes to assess not only which patents should be opted-out, but which countries are designated, which entities need to participate in this opt-out and whether the correct permissions are in place – all of which will clearly be both time and resource heavy.
All of the above considers only patentees, but a great many patents are licensed from one entity to another. Since it must be the proprietor who applies for the opt-out, licensees must check what the patentee is planning to do (and remind them, if necessary, that steps need to be taken). Similarly, patentees who have out-licensed patents may wish to inform their licensees what is planned, and discuss it with them. In parenthesis, it is now obviously prudent for new collaboration/licence agreements to set out clearly who has the right to decide whether any resultant European patents are opted-out (and indeed whether a Unitary Patent might be sought), but it is unlikely that any existing agreements will include such provisions, thereby necessitating negotiations between the patentee and licensee. This is no small exercise given the likelihood that the different parties may have different views on what should happen.
For those companies who have decided not to opt-out any patents, this issue will be of no concern. But for all others, deciding upon a strategy and implementing it accurately, a major exercise lies ahead. It is therefore imperative that companies act now to complete their due diligence and set up internal processes to implement their strategy. The clock is ticking and only the possibility of Brexit stands in the way.

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