A new coalition of companies against the threat of patent trolls before the Unified Patent Court

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.

The UPC- Provisional and Protective measures and Bifurcation:

 

I. Provisional and Protective measures:

 

(A) The provisional measures granted by the UPC:

The UPC will have the power to:

  • order the seizure or delivery up of products suspected of infringing a patent, as well as the precautionary seizure of the movable and immovable property of the alleged infringer, including the blocking of the bank accounts and of other assets of the alleged infringer (Article 62.3 of the UPC Agreement).

 

 

(B) Provisional measures, strength of the plaintiff and other factors:

Before granting an injunction, the UPC will weigh up the interests of the parties and in particular take into account the potential harm for either of the parties resulting from the granting or the refusal of the injunction as stated in Article 62.2 of the UPC Agreement and Rule 211.3 of the draft Rules of Procedure of the UPC.

Factors which the UPC shall take into account under Rule 209 of the draft Rules of Procedure of the UPC include:

  • the outcome of any opposition  before the European Patent Office or any other proceedings before a national court,
  • the urgency of the case,
  • whether the defendant has been heard,
  • whether any protective letter has been filed.

 

The UPC may also require the party applying for an injunction to provide reasonable evidence in order to satisfy the UPC with a sufficient degree of certainty that the party is the right holder and that his right is being infringed, or that such infringement is imminent under Article 62.4 of the UPC Agreement.

 

(C) Interim Measures and Exclusive Jurisdiction:

The UPC is a court common to the Contracting Member States as stated in Article 1.2 of the UPC Agreement, in which it has exclusive jurisdiction. However, decisions and orders -like for example an order to preserve evidence- can under certain circumstances be enforced outside the territories of the Contracting Member States in accordance with Regulation 1215/2012.

 

(D) Interim measures without involving the defendant:

Under Article 62.5 of the UPC Agreement, where necessary to avoid any delay which could cause irreparable harm to the patent proprietor, or where there is a demonstrable risk of evidence being destroyed, the UPC will have the power to grant – without hearing the defendant – provisional and protective measures (injunctions, seizure or delivery up).

Similarly, the UPC may order measures to preserve evidence or inspect premises and grant freezing orders without hearing the defendant (Articles 60.5 and 61.2 of the UPC Agreement; and Rule 212 of the draft Rules of Procedure of the UPC).

 

(E) Protective Letter:

A protective letter may be filed at the UPC, typically where a person considers that there is a risk that an application for provisional measures against him as a defendant be lodged before the UPC (Rule 207 of the draft Rules of Procedure of the UPC).

It is envisaged that a protective letter may be filed at any time. It may contain facts, evidence and arguments of law and set out the reasons why any future application for provisional measures should be rejected by the UPC. It is furthermore envisaged that a fee should be paid. The protective letter would have effect for a period of 6 months (extendable upon payment of an extension fee). It would not be made public.

 

 

II. Bifurcation:

 

(A) Infringement and Validity actions:

If an infringement action is initiated before the central division of the UPC and a counterclaim for invalidity is brought before the central division, both infringement and validity will be dealt with together.

If an infringement action is initiated before a local or regional division of the UPC and a counterclaim for invalidity of the patent is brought before the local or regional division concerned, Article 33.3 of the UPC Agreement foresees different scenarios:

  • The local or regional division concerned may decide to proceed both with the infringement action and the counterclaim for invalidity together (in this case it has to request the allocation of a technically qualified judge with qualifications and experience in the field of technology concerned);
  • it may alternatively decide to refer the counterclaim for invalidity for decision to the central division and, depending on the circumstances of the case, either suspend or proceed with the infringement action (Rule 37.4 of the draft Rules of Procedure of the UPC provides further guidance to the local or regional division on the criteria to consider when deciding whether to suspend or to proceed with the infringement action);
  • with the agreement of the parties, the local or regional division concerned may also decide to refer both the infringement action and the counterclaim for invalidity to the central division, where they will be dealt with together.

 

(B) UPC’s discretion as to hear infringement and validity together:

Article 33.3 of the UPC Agreement leaves it to the discretion of the local or regional division concerned to decide whether to proceed with the infringement action and the counterclaim for invalidity together or whether to refer the counterclaim for decision to the central division.

In the latter case it is also left to the discretion of the division concerned whether to proceed with the infringement action or whether to stay the infringement proceedings and to wait for the counterclaim for invalidity to be decided on by the central division.

It is expected that the division concerned will take these decisions taking into account all relevant circumstances of the case, including grounds of fairness to the parties.