EU Poised to Overhaul Its Patent System: New unitary patent and court are likely to shake up global patent dispute strategies

On the heels of patent reform in the U.S., the EU is preparing to dramatically shift its approach to patent disputes. A new EU-wide unitary patent to supplement country-by-country patents and a new court system, with jurisdiction that makes it almost as big as the U.S. system, mean big changes ahead. In this interview, Jones Day patent litigators Alastair McCulloch, who leads the firm’s IP team in the UK, and Dr. Christian Paul, who is qualified as a lawyer and graduate chemist in Germany, discuss the likely impact of the new system and what Jones Day is doing to prepare clients for the changes ahead. Their remarks have been edited for length and style.

 

MCC: Alastair, you lead Jones Day’s IP team in the UK. Can you tell our readers a bit about your practice?

 

McCulloch: I focus predominantly on patent litigation before the UK courts. Much of this is multijurisdictional disputes being litigated in a number of jurisdictions. In Europe, this most often means litigation in Germany and in the UK. Although I’m a UK litigator handling UK disputes, I often work very closely with Christian.

 

MCC: Christian, you’re Jones Day’s lead patent litigator on chemistry and pharma matters in Germany. Tell us a bit more about your multijurisdictional work generally and your work with Alastair in particular. 

 

Paul: Alastair and I work closely together because a lot of our work involves parallel litigation in the UK and Germany. That’s part of it, but our multijurisdictional work goes far beyond this. In Europe, patent disputes typically involve opposition proceedings at the European Patent Office in parallel to the national litigation. At Jones Day, we therefore have a very large European Patent Office practice, as well as strong litigation teams in the major European jurisdictions. These teams are very closely integrated, forming the backbone of our European patent litigation work. In addition, disputes often extend beyond these forums, particularly to the U.S. but also to other jurisdictions, such as Australia or other European countries. We thus regularly work closely together with U.S. and other colleagues around the word, which brings a global approach to handling patent disputes.

 

McCulloch: The key feature, we think, about our practice, as Christian has stressed, is the close coordination between the different jurisdictions worldwide to align arguments and prepare things in a coordinated and efficient way. 

 

MCC: We’ve all read about the changing patent landscape in Europe. Can you give our readers a quick overview of the changes coming up?

 

McCulloch: There are two major changes coming up. The first of these is the introduction of the new unitary patent – a single patent covering almost the entire EU area. This contrasts with our existing European patents, which though they have a single prosecution and opposition procedure, are in fact separate patents in each of the countries. The new unitary patent is going to exist in parallel with the existing European patents and the existing national patents.

The second major change is a new patent court to go alongside the new patent. This primarily will be for enforcing or addressing issues related to the new unitary patent. However, and this is of great importance, it will also have jurisdiction over existing European patents unless the owner has opted those patents out of the new system. That means that this new system has the potential to affect all existing European patent portfolios. It is going to be a very significant change for us.

 

Paul: It definitely will be. That change will mostly result from the new court system rather than the unitary patent itself. The unitary patent will essentially provide protection far more cheaply than the existing European patent system, but aside from this, there will be little difference as far as the patent itself is concerned. 

In contrast, the Unified Patent Court has been created from scratch. It is going to have an entirely new set of procedural rules, and it will mix and blend legal principles from various European countries. It will start without an existing body of case law. In addition, you have to picture that the panels of judges will deliberately be drawn from different jurisdictions to make it more diverse and address the different legal histories across the European system. This means the most important strategic decision in the future will be whether to use the new court system or not. When you have a unitary patent at issue, you don’t have a choice. The new court system is a must. But as Alastair mentioned before, the court system will also apply to existing European patents unless their owners explicitly opt out of it. If chosen, the court system will handle patent infringement proceedings over multiple territories in one single court proceeding. This is clearly going to be a significant change to the way patent infringement disputes will be handled in Europe in the future.

 

MCC: With patentees able to cover patent litigation in Europe with a single court action, it sounds like you two may be working together less often in the future. 

 

McCulloch: I anticipate that we will still be working closely together.  We’re expecting many patents to be opted out of the new system. The result is that much patent litigation, at least in the early stages, will continue to be conducted on a country-by-country basis, as it is today. For the cases that are litigated in the new court, there is a great deal of uncertainty about how the judges will exercise their discretion. They will have considerable discretion under the new rules of procedure. We think it’s likely that German and UK judges will be prominent in the new system. As the court is being set up from scratch, with an entire new set of rules of procedure, they will likely draw on their previous experiences. This means that forum shopping will very likely occur. It will be important to develop litigation strategies to address these issues. Therefore, I think it will be very important to have input and understanding from more than one jurisdiction to properly address the diversity within the panels of judges that will exist under the new system.

 

MCC: Christian, can you tell us a bit more about how the new court will
be structured?

 

Paul: It will be a two-level court system where the first instance will be comprised of so-called local and regional divisions, as well as a central division. These local and regional divisions are essentially the entry-level courts for patent disputes under the new system. Whether or not a country in Europe will host such a local division will depend on the past number of patent disputes in that territory. Consequently, some countries may have none or may team up with other countries to set up regional divisions, which will be first-instance courts for the combined territories of those states that set these divisions up.

In contrast, you will also have one country, Germany, which will host not just one local division but four. That is a reflection of the high volume of patent litigation handled before German courts in the past. These four local divisions will be located in Munich, Düsseldorf, Mannheim and Hamburg. 

The central division is different. It will mostly handle stand-alone revocation proceedings, although it is important to realize that the new system allows counterclaims for invalidity before the local divisions as well. That’s important because that means the system, while it allows for bifurcation – the separation of validity and infringement proceedings, meaning that they’re heard before different courts – this bifurcation is not mandatory, but merely optional under the new system. As a result, we expect to still see bifurcation, but less than previously in proceedings in Germany. It is important to note that bifurcation is an important characterizing feature of the existing litigation system in Germany.

Another important element, which will be a change to the existing system, will be that the panel of judges may also include technical judges – judges with a technical or scientific degree, not a formal legal education. 

Finally, the new system will rely heavily on written procedure. Briefing will be limited to a few briefs with a high level of detail from the beginning. This will be similar to the procedural style as currently applied e.g. in Germany, but differ significantly from legal culture in several other jurisdictions. Overall, the system is designed to be as efficient as possible, aiming to proceed to oral hearing within a year.

 

MCC: Will the approach to the new system vary by sector, and if so, how?

 

McCulloch: I expect that it will. Pharma companies, if we start off with those, often rely on just one or a few patents to protect their products. I think that will mean that they will likely be cautious about using the new court, with little idea as to how it will work in practice. I would expect that many of them will opt out of their existing European patents at least until they see how the new system is working in practice.

In contrast, I think the telecom and the tech industries, which generally have large portfolios of patents relevant to each device, can afford to put a number of patents into the new system from the outset without risking their overall protection. I would expect that many tech companies will put part of their portfolio into the new system at the outset but maybe opt out the rest. Then they can try out the new system to see if it has the potential benefits that have been promised, but they still have a considerable portion of their patents in reserve in case the new system should prove unsuitable in practice.

 

Paul: We have, of course, been talking to clients and listening to what other colleagues say at conferences, etc. It indeed seems to be that this pattern is emerging. Depending on the sector you’re in, there may be general strategies that apply, but it’s important to emphasize that there is no real one-size-fits-all strategy. It depends on the circumstances and how the company is positioned. There may be a better-fitting strategy for a company that is different from what competitors anticipate they will do. 

 

MCC: What are the major changes in the new system that may be relevant for litigants?

 

Paul: As I mentioned before, one major change will certainly be that the panel of judges may include technical judges. That goes hand in hand with the expectation that most cases won’t be bifurcated, so that validity will mostly be heard together with infringement. That is important because it will require more scientific and technical skills from the lawyers that represent clients in such technology-intense cases. Actually, it’s one of the reasons why we are looking forward to the new system because this has always been a key strength of our practice. Our European Patent Office team members have a variety of technical degrees ranging from molecular biology to engineering. In addition, we are unique in having two dual-qualified patent litigators in Germany. Our partner Gerd Jaekel is a lawyer and a physicist specializing in engineering and electronics matters, while I am qualified as a lawyer and a graduate chemist, specializing on chemistry matters. We are thus well-positioned for this foreseeable shift to even more scientific facts in the proceedings.

 

McCulloch: The new system could, over time, shift the strategy in global patent disputes. The new system is setting up a court that by the size of its jurisdiction is going to be equivalent to the U.S. That will open up new possibilities for how patentees approach global enforcement. At present, you have the U.S. market, which is much larger than each individual European market. A European market of equivalent size will open up very interesting possibilities for patent enforcement strategies.

 

MCC: Are there any other issues or trends associated with the new system that you are tracking?

 

McCulloch: There’s one trend that may come along with the system. Whilst the new system is designed to provide an effective and affordable patent system, especially with smaller companies in mind, there is a risk that it may bring some negative side effects. In particular, a system that allows you to enforce patent rights across Europe with a single, relatively streamlined proceeding may become very attractive to patent trolls. That could lead to an increase in patent-troll litigation in Europe. Until now, patent trolls have been relatively inactive in Europe, at least in comparison with the U.S. That may be an unforeseen consequence of the new system.

 

Paul: At this point, of course, it’s very difficult to foresee which trends will emerge. At the heart of it, the key issue will be the extent to which companies actually use the new system, or whether they try to avoid it in the initial phase. That remains to be seen. Any litigant that is looking for an efficient system that covers several territories at once, and who is not overly concerned about a court system that is as yet untested, will likely choose the new system and may, in particular in the initial stage, have the opportunity to define the case law. It will be interesting times. That’s for sure.

 

MCC: Is there anything that you’re particularly looking forward to in working with the new system?

 

Paul: There actually is something that is particularly important in terms of German procedural practice. I am very happy to see that the new system will also include an “order for inspection,” as it’s called. This will enable patentees to get an ex parte court order to conduct a dawn raid on competitors’ premises, allowing them to inspect potentially patent-infringing processes or products without prior warning – the things you would usually like to keep locked away behind closed doors. Enforcing these types of orders requires a high degree of flexibility and technical knowledge from the litigators that are present at the scene. They always pose an interesting challenge, which make them one of my favorites.

It will also be interesting to combine the new proceedings with U.S.-based discovery proceedings to enhance the evidence that can be used in court. This option will be available under the new system, by using Section 1782 proceedings before the U.S. courts to obtain “assistance to foreign and international tribunals and to litigants before such tribunals.” We are definitely looking forward to that as it is another example where we can put the multijurisdictional cooperation among the global Jones Day teams to practical use.

 

McCulloch: For me, the benefits that will flow from having patent litigation that can cover a much larger jurisdiction, covering almost the whole of Europe, and do away with the need for a multiplicity of proceedings in different countries will make Europe, as a patent litigation venue, a much stronger force in global patent disputes. That will give patentees an extra, stronger tool in their armory, and it will give Europe a more important role in resolving patent disputes worldwide. I’m looking forward to that.

 

MCC: What’s the timing for launch of the new system?

 

McCulloch: It needs 13 of the relevant states to ratify the agreement before the new system comes into force. Those 13 must include all of Germany, the UK and France. The authorities are aiming for the end of this year or the start of next year. The general consensus is that mid-2017 is a more realistic target date for when the new system will be up and in force.

Of course, companies will need to decide well ahead of then on their strategies for the new system. This should done as early as possible. Many clients already are preparing.

 

Dr. Christian PaulPartner in the Munich office of Jones Day. cpaul@jonesday.com

Alastair J. McCullochPartner in the London office of Jones Day. amcculloch@jonesday.com

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