Contracts Involving European Patents: Five Steps to Take Now in the Wake of the New EU Unitary Patent System

What You Need To Know

1. From 1 June 2023, a new EU unitary patent system (UPS) will become fully effective. A unitary patent (UP) is a European patent granted by the European Patent Office (EPO) to which, at the patent owner’s request, unitary effect is given for the territory of the EU Member States that have ratified the Unified Patent Court Agreement – currently, 17 EU Member States. UPs give patent owners uniform protection across participating EU Member States, removing the need for national validation procedures as well as individual national enforcement in each EU Member State.

2. However, the new UPS also significantly affects existing European patents (EP) with designations in the 17 EU Member States participating in the UPS. During an initial transitional 7-year period, in addition to remaining subject to national court jurisdiction, EPs will automatically become subject to the dual jurisdiction of a new Unified Patent Court (UPC) in respect of the participating EU Member States, unless those EPs have been opted out of UPC jurisdiction.

3. The UPC is a new court system that enables centralised proceedings to determine infringement and validity of both (i) conventional EPs (in respect of any designations in participating EU Member States) that have not been opted out from UPC jurisdiction and (ii) UPs (which will inherently be subject to UPC jurisdiction and cannot be opted out). Centralised action creates opportunities and risks: expedited enforcement across all participating EU Member States, but vulnerability to centralised counterclaims for invalidity and declarations of non-infringement.

4. There is a sunrise period prior to 1 June 2023, during which EPs can be opted out of the UPC’s jurisdiction before those EPs can be pinned in proceedings before the UPC. From 1 June 2023 onwards, the UPC may start to receive cases and owners of EPs could find themselves pinned in proceedings before the new UPC rather than a national court (i.e., once those proceedings have been initiated under or against an EP at the UPC, the EP becomes locked into the jurisdiction of the UPC). EPs that have been opted out of UPC jurisdiction can be opted back into UPC jurisdiction again (but cannot then be opted out a second time), unless (after being opted out) proceedings were brought under or against them before a national court in a participating EU Member State.

5. Parties entering into patent transactions involving existing (or potential future) EPs should consider the impact of the UPS on their contracts and licences. A crucial feature is whether or not a party can control and implement its chosen path of action, or is vulnerable to its counterparty causing the relevant EPs to fall within or outside of UPC jurisdiction. This is particularly the case in long-term, high-value exclusive licence agreements and collaborations, including joint development agreements in which joint inventions or cross-licensing may arise. Deciding whether to opt in or out of the UPS requires careful consideration of the pros and cons of the new system and overall patent strategy.

What You Need To Do

1. Check agreements to see whether existing language covers control of UPS strategy, whether expressly or by implication. Existing language might not be sufficient to empower a party to take its chosen course of action or prevent its counterparty from locking an EP within or outside of UPC jurisdiction.

2. Insert clear contractual drafting to cover the desired UPS strategy. Exclusive licensees might not realise that their licensors can opt the relevant EPs in/out of UPC jurisdiction without their involvement. Likewise, patent owners might be surprised if exclusive licensees enforce the licensed EPs before the UPC or national courts in a manner that locks the EP within or outside of UPC jurisdiction. Specific contractual mechanics may be needed compelling patent owners to provide or obtain opt-out/opt-in signatures, governing the priority of applicants named in UP applications, and to make the relevant EPO/UPC filings. In some cases, time may be of the essence in implementing the desired actions, so ensure the contract reinforces this through tight deadlines and timing covenants.

3. Consider cost reimbursement and allocation of enforcement recoveries. Participation or opt-out from the UPS will have consequences for the costs and recoveries of proceedings. If litigating at the UPC, counterparties might also want enhanced cooperation and consultation rights (e.g., through separate counsel) in view of the untested system.

4. Include representations and warranties in deal documents to flush out UPS strategy and ensure a seller or licensor has taken the necessary steps to enable the buyer or licensee to take its chosen course of action. In complex corporate groups or where patent portfolios involve multiple owners or co-owners of EP designations, ensure licensors have the authority to bind (or have already obtained consents from) other owners/co-owners of the relevant EP designations.

5. Consider indemnities for breaches that irreversibly lock the relevant EPs within or outside of the UPS. Precise indemnity drafting or liquidated damages clauses may be required to assist with the types of losses resulting from such breaches, which might otherwise be hard to quantify.

As UPS strategies evolve in transactional contexts, now is that time to act.