What are the amendments proposed by the UPC Industry Coalition?
The issue of Patent Trolls and the strong opposition of certain companies to the separation between infringement and validity actions, modelled on the German Court structure, have arisen already a few times since the UPC was announced. Groups of companies published open letters addressed to the UPC expressing their concerns while some participated to the open review of the UPC Rules of Procedure. The UPC Blog covered some of these initiatives here and here.
The UPC Industry Coalition however distinguishes itself by uniting major IP actors such as Microsoft and Google with small and medium European companies such as Elkamet or Planisware. Both categories of stakeholders have joined in and publically appealed the UPC and its Select and Preparatory Committee to modify certain rules of procedure to allow a stronger protection against abuses from “unprincipled plaintiffs”.
These companies identify on their website two supposed threats within the UPC Rules of Procedure:
- The first one is the injunction gap or “the gap of time during which the products of a company can be barred from the EU market despite a pending question about the patent’s validity” caused by the bifurcation of infringement and validity actions decided by two different courts in two different countries. The fear expressed by these companies is that patent trolls will use the injunction gap to force SMEs to “pay excessively high settlements (even on potentially invalid patents) diverting those precious resources from R&D and other critical uses.” In fact, for the UPC Industry Coalition, the risk for SMEs to have their products removed from the market while waiting for the validity of the patent to be assessed by the court could be life threatening. Against this potential risk the signatories recommend that “validity should be decided before or at the same time as infringement, or the remedy from the injunction decision should be stayed until after the pending validity issue has been decided”.
In their position paper on the Unified Patent Court draft rules of procedure dated 26 November 2014, the Industry Coalition makes three specific proposals to address this issue:
(1) Expedited Revocation ruling: this option would encourage the revocation Court to issue the substance of its decision before the infringement decision. In fact, “by informing the parties of its decision as soon after the oral hearing as possible, the revocation Court can minimize the possibility that an injunctive remedy will be imposed on an invalid patent.” Rule 40 on “Accelerated proceedings before the central division” however would need to be amended, so that it expressly states that the Judge Rapporteur should only issue a revocation decision after the oral hearing. The proposed amendment can be seen here.
(2) Enforcement Only After Revocation is completed: This option would prevent enforcement of any injunctive relief until the central division completes the revocation proceedings or in other words would prevent the execution of injunctions or seizures based on the infringement of a patent that may later be declared invalid. According to the UPC Industry Coalition “ensuring that injunctions and seizures are not enforced until any pending validity issues between the parties have been resolved prevents numerous public and private harms, including abusive litigation and the waste of public and private resources”. This option would imply amending rule 37 on the “Application of Article 33(3) of the Agreement” so that remedies are not enforceable on invalid patents. The amendment can be seen here.
(3) Bond Requirement: This option would require the patentee to post a bond before the Court enforces any injunctive relief when the central division has not yet ruled on the pending revocation issue. The bond amount, which would be left to the discretion of the Court, would have to be sufficient to compensate the accused infringer for any harm suffered by the unwarranted imposition of injunctive relief if the patent concerned is later determined to be invalid. Rule 352 “Binding effect of decisions or order subject to security” would then need to be amended so that permanent injunctions or corrective measures taken in infringement proceedings are not ordered without a security in place. The amendment can be seen here.
- The second alleged threat that this coalition wishes to prevent is “the lack of discretion and guidance on proportionality for injunctions”. In fact, according to the members of the UPC Industry Coalition “the latest draft of the UPC Rules of Procedure severely limits the judicial discretion to consider the individual facts of the case and to tailor injunctions accordingly.” This would be due to the increasing number of patents used in products. An injunction could thus permit “the most trivial of patents to bar far more significant products from the near EU-wide market”, which would of course have a disproportionate impact on the business of SMEs. Hence, the coalition argues that “although the patent itself may contribute only insignificantly to the entire product, by providing an injunction on the entire product, the patent holder essentially is credited with 100% of the product value. Thus, even trivial patents that contribute insubstantially to a product can exert tremendous business leverage on a company”. The UPC Industry Coalition thus concludes that the absence of discretion and direction for Judges to consider the proportional harm and fairness to the parties when granting injunctions will permit “unprincipled plaintiffs to force high royalties through settlements, royalties that far outstrip the actual value contributed by the patent.” In its open letter to the Preparatory and Select Committee commenting dated 26 November 2014, the UPC Industry Coalition therefore suggests an amendment of rule 118 “Decision on the merits” so that the Court would be compelled to have regard to the principles of fairness, flexibility, proportionality and equity when making a decision on whether to grant or not an injunction.
So what do we think at the UPC blog about these suggested amendments and the threats that patent trolls may derail the UPC?
It seems to us that it is regrettable that the treaty allows bifurcation as the UPC procedure is quick enough to eliminate by itself the slowness caused by a defense based on the invalidity of the patent.
Practically, the bifurcation seems attractive to us only in the absence of a technical judge within a local or regional division for such a case.
If there was any abuse of the bifurcation, by Trolls or other patentees (Trolls are in fact not the only one to abuse the bifurcation system, other patentees may misappropriate it too), it will always be possible to the UPC to create its own jurisprudence and to equip itself with appropriate counter measures.
In this respect, the propositions published by the UPC Industry Coalition, and in particular the bond requirement, appear to us judicious.