UPC harmonisation called into question: what German litigants should expect in 2023

According to the latest announcements from the Administrative Committee, the Unified Patent Court (UPC) will open its doors in 2023 (for a first overview of the system, see https://www.epo.org/applying/european/unitary_de.html and the UPC’s own website https://www.unified-patent-court.org). Intended to decide on infringement and invalidity cases, the UPC is a treaty-based court for the majority of EU member states and will be competent in European unitary patents, which will offer uniform patent protection throughout the entire European Union. It will also hear infringement and invalidity matters related to conventional European patents. While patent proprietors will be able to opt out of the system during its seven-year transitional period, it is expected that a large number of infringement disputes, including those surrounding existing European patents, will be litigated before the UPC. The proceedings and claims available will be governed by the provisions of the Agreement on a Unified Patent Court (AUPC) and the related Rules of Procedure. German litigants should arm themselves with knowledge about what to expect from the new system, particularly in relation to standard essential patent (SEP) actions.

The UPC and the SEP defence

Principles

The FRAND defence is not explicitly set out in the UPC’s foundational rules – also known as the EU Patent Package. However, since EU antitrust law automatically applies to the entire territory of the European Union (see Article 101 of the Treaty on the Functioning of the European Union), it must also be observed in UPC proceedings. It is a cornerstone of the UPC system that EU law and CJEU case law take precedence and must be adhered to. Article 1 (2) of the AUPC explicitly states that the UPC is subject to the same EU law obligations as member states’ national courts, so the UPC must abide by the CJEU’s decisions.

This includes the CJEU’s decision in Huawei v ZTE (16 July 2015 in case C-170/13), where the CJEU established the basic rules of the FRAND defence. In this respect, the UPC is conferred discretion on whether to grant an injunction (Article 63 Unified Patent Court Agreement). While it is safe to assume that an injunction will be issued upon a finding of infringement of a non-SEP, it remains to be seen whether the UPC will apply a more restrictive approach in SEP/FRAND cases.

Subtleties

However, the vast majority of the FRAND defence’s specific details are laid down by national courts – not the CJEU – and their decision-making practices widely differ across Europe, so it is assumed that the UPC will establish its own practice over time. This offers an opportunity to develop a uniform approach to the FRAND defence, at least in respect of actions based on European patents (and later, on unitary patents). Several factors, however, suggest that a harmonised decision-making practice is still some years away.

While many are willing to engage with the UPC, there is also a desire to leave ‘crown jewels’ in the conventional system (ie, to declare an opt-out), at least for the time being. Many practitioners expect it will take a few years before the first SEP will be enforced through the UPC.

Even if SEP-based actions are brought, a harmonised practice cannot be expected immediately. Alongside the central division, which is particularly competent for invalidity actions, a provision outlines one regional division and 13 local divisions – all to be established in various locations. Germany will host four local divisions: Munich, Mannheim, Düsseldorf and Hamburg. These are the locations of conventional patent courts already existing in the German court system, and the UPC divisions there will also be staffed, in part, with judges from the respective German courts.

It can  be expected that, for a transitional period at least, the decision-making practice at many local divisions will resemble the practice of the national patent courts in the same location. Harmonisation is then only likely to occur over time once enough SEP cases have been decided by the Court of Appeal, three to four years after the first SEP action before the UPC, at the earliest. The UPC thus cannot be expected to have a harmonised, consolidated decision-making practice within the next five to six years.

Actions to conclude FRAND licences

Counterclaims

Pursuant to Article 32 of the AUPC, the UPC has competence in relation to “actions for actual or threatened infringements of patents and supplementary protection certificates and related defences, including counterclaims concerning licences”. Such counterclaims include actions aimed at concluding a licence. Should an infringement action be pending, the defendant can file a counterclaim, with the intention of obtaining consent to conclude a licence for the relevant patent on FRAND terms.

Whether this would allow a request for a portfolio licence or only for a licence related to the actual patent-in-suit is questionable. One problem is that SEP portfolios typically contain non-European patents, such as national patents, which are outside the UPC system. In practice, portfolio licences are necessary because the licensee always needs all patents essential to the standard in question to realise it.

How the UPC will evaluate this issue remains to be seen. In legal literature, the response is that the UPC is also competent in hearing counterclaims related to accessing worldwide portfolios that are not subject to the UPC system. However, this jurisdiction is not exclusive; counterclaims can also be heard before a national court.

Independent actions

Conversely, the UPC does not have jurisdiction over actions for FRAND licences brought by independent actions (ie, not counterclaims); only the national courts have jurisdiction here. The UPC’s exclusive competence for counterclaims does not preclude national courts’ jurisdiction over general performance actions brought before them concerning the conclusion of FRAND licences.

Looking ahead

Litigating SEPs in the framework of the UPC system offers the opportunity for a novel, optimised, and unified approach towards the FRAND defence throughout Europe. However, such unification may take some years in the making, and the practice along the way may resemble what we have already seen from national state courts.