Allen & Overy research reveals growing business support for UPC

Research published by Allen & Overy demonstrates surprising support for Europe’s hotly debated Unified Patent Court, with almost three-quarters (74 per cent) of those responsible for overseeing preparations for the new system expecting it to be positive for their company — and only 15 per cent expect it to have negative consequences for them.

While on the big question of whether to opt in or opt out of the new system during its seven-year transition period, the majority of respondents are undecided on the bulk of their portfolio (68 per cent on average), close to half (49 per cent) of those surveyed said they would definitely opt in at least some of their patents, while only 15 per cent say they would definitely opt out some.

Crucially, where businesses have made a decision to opt in, about 24 per cent of their portfolio on average, they are deciding to opt in their most valuable, or crown jewel, patents. This suggests that, where it matters most for business, they will opt in.

As this statement and the research suggest, despite the faltering reception the new system has received from companies across the globe, its impact is likely to be significant. The UPC will offer patentees the ability to obtain broader remedies than those currently on offer in the US, with a larger customer base impacted and injunctions that are easier, cheaper and quicker to obtain. Costs are estimated to be at least five times lower than in the US.

These advantages alone mean there is likely to be a shift towards Europe’s UPC as a forum of choice to rival the US for major patent disputes. This is further supported by the majority of respondents indicating they will file unitary patents, as opposed to classic European or national patents, under the new system.

Despite its potential impact on business, the report also highlights an alarming lack of engagement among senior management on the UPC. Only 13 per cent of those responsible for preparations for the new regime say their senior management are ‘fully engaged’ on the issue and appreciate the potential implications. One consequence of which could see businesses lose exclusivity for their products, or worse still, have their business or products locked out of the entire continent.

The scale of the change taking place means that companies cannot prepare for it overnight. If they don’t engage strategically with the changes now, they could find their competitors dragging them into UPC or national patent litigation on their own terms.

While the decision on what to do with a companies’ most valuable patents seems clear, what to do with a business’s less valuable patents is anything but. The 68 per cent, on average, of their portfolio that business are still undecided on is largely made up of their secondary patents. Lack of clarity on costs is cited as the main barrier to being able to make decisions according to two-thirds (67 per cent) of respondents. Only when this is clarified will businesses be able to undertake a proper cost-benefit analysis on their less valuable patents and whether it is more economically beneficial to opt them in or out.

As well as clarity on costs, there is a pressing need to clarify a few areas where interpretations of the rules differ. This risks leaving companies with dangerous gaps in the understanding of the strategic implications of their decisions. In particular what happens to patents that have not been formally opted out of the UPC? These ‘opt-in orphans’ can be litigated during the transitional period in either the national courts or the UPC.

But it is not clear what happens after proceedings have been completed and whether national court proceedings could effectively opt them out of the UPC for the life of the patent. An extreme example would be a pharmaceutical generic company launching a revocation action against, for example, the Latvian part of a blockbuster patent. The company could then withdraw the action, having effectively forced the patentee out of the UPC system. This goes entirely contrary to the original intention to leave as many patents as possible in the system. Another interpretation of the rules could also see the possibility of concurrent litigation in both the UPC and national courts which could lead to contradictory decisions if, for example, a national court upholds a patent and the UPC revokes it. This is the very type of clash the UPC is designed to avoid. Greater clarity is urgently required for these ‘opt-in orphans’.

Commenting, Geert Glas, head of Allen & Overy’s IP practice said: ‘Companies cannot afford to wait until they have an absolute and final answer to every question. There is now evidence enough for them to decide whether or not to use the system. Time is running out before the UPC becomes active. Companies can’t afford to hesitate over one of the bigger strategic decisions their organisations will face for many years.’

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