The Unitary Patent’s Impact on Life Sciences Companies

After decades of fitful effort, the European Patent with Unitary Effect (“EPUE” or “Unitary Patent”) still looks set to become reality—eventually at least.  There have been complicating developments over the past year in the UK and Germany that threaten to prolong the start of the Unitary Patent a while longer.

Legal challenges brought by Italy and Spain have been defeated, and Italy joined earlier this year.  That leaves Spain and Croatia as holdouts, along with Poland, which signed on initially, but has indicated that it will not ratify the agreement on the Unified Patent Court (UPC), effectively withdrawing participation.

When Matt Sekac, Senior Director at Welocalize and Park IP, Welocalize’s legal language services provider, first wrote on this subject in 2016, there were still details to be worked out and final ratifications were still pending, but the indications were that the Unitary Patent could “open for business” as early as 2017.  Now 2017 is almost over and even a 2018 kickoff for the Unitary Patent remains uncertain.  In this article, Matt weighs in on the obstacles to ratification and how they impact life sciences companies.

New Obstacles to Ratification

The EU Regulations underlying the Unitary Patent require ratification of at least thirteen member countries; in fact, fourteen have already done so.  However, ratification must also take place within the three countries with the most patents in force: Germany, France and the UK.  Although most of the European practitioners we’ve spoken to remain confident that the regulations will eventually go into effect, challenges still need to be resolved relating to the UK’s 2016 “Brexit” decision and a recent challenge to the UPC in Germany’s constitutional court.

The “Brexit” Factor

Since the Unitary Patent Regulations are based on what is known as “Enhanced Cooperation” between EU Member states, there is, strictly speaking, no legal basis for the UK to participate in the Unitary Patent once it has withdrawn from the European Union.  As a consequence, it seems fairly clear that some modification to the Unitary Patent Regulations—which took decades to agree upon—will have to be made in order to allow for the UK’s continued participation.  While some observers appear to believe that such an amendment can be executed quickly, it does raise questions about whether other non-EU countries could get involved and if so, under what terms.

There are also concerns relating to the Unified Patent Court itself, which ratifying must accept as the final judicial authority over the patent-related matters within its jurisdiction.  The court was set to have one of its three branches—the one governing life science and pharmaceutical patents—in the UK.  However, the court’s judges must be EU Citizens, which would exclude citizens of the UK post-Brexit.  This introduces challenges from the UK’s standpoint, since UK will want to retain a seat of the UPC if possible and many will have reservations about excluding UK citizens from the judicial talent pool available to the UPC.

Notwithstanding all this, the UK has confirmed its intention to proceed with ratification and implementation of the UPC despite its intention to withdraw from the EU.  The ratification process has continued to move through the required procedures in Parliament, and until the UK’s withdrawal is formally effective, there’s nothing standing in the way.  By the time that happens, though, it will be necessary for the UK and the rest of the EU to work out fixes for these legal obstacles.

Obstacles in Germany

In a development few observers were expecting, Germany has emerged at the latest obstacle to the making the Unitary Patent a reality.  Although ratification of the UPC Agreement proceeded smoothly through the German legislature early this year, a subsequent legal challenge has brought the process to a standstill while the court works through the constitutionality of the agreement.  Details that have emerged recently suggest that it is likely to be a protracted case.

But Eventually: No More Patent Translations in Europe?

The Unitary Patent’s central objective is to make access to the European patent system simpler and less costly in large part by eliminating translation requirements, which currently account for a significant proportion of the upfront costs associated with securing pan-European patent protection. Park IP, a Welocalize company, estimates that over $200 million is spent annually on translations for EP Validation; the Unitary Patent should cause that number to drop significantly over time. But even assuming the obstacles described above are overcome and the Unitary Patent does finally go into effect, how quickly and to what extent the total market expenditure on translation for EP Validation will decline remains unclear.

At least as currently constituted, the Unitary Patent will only be valid in EU member states, so applicants wishing to secure protection in countries that are EPC members but not EU members will still need to validate in those countries individually.  The same will be true for Croatia, Spain and Poland unless and until they come on board, so the need for patent translations in Europe isn’t set to disappear completely.

It will also be necessary, during a transitional period, to submit a full translation of Unitary Patent applications either into English (if the application was examined in French or German) or into any other official language of the EU. For applicants currently validating in only a few countries, this may constitute an additional up-front cost.

The biggest source of uncertainty, though, is how quickly and to what extent applicants will choose to participate in the Unitary Patent.  Many have expressed real concerns about “central revocation” as well as doubts about how the new Unified Patent Court will function.  The regulations allow patent holders to continue filing “classical” European patents, and opt out of the UPC’s jurisdiction at any point during a seven-year transitional period.  As a result, many of the practitioners we’ve spoken with expect to take a conservative, “wait and see” approach.

A Double-Edged Sword for Life Science Companies

In assessing the potential impact of the Unitary Patent, life science companies are front and center.  Per the EPO, only 2% of granted European patents are validated in all 27 EU member states, and only 8% in 13 or more.  Life science organizations likely account for the lion’s share of these.  Patent protection is a core business interest for R&D-driven life science companies; that these organizations tend to pursue the broadest scope of patent coverage is widely recognized.  An analysis prepared by the patent firm Reddie & Grose estimated that life science patents are validated in twice as many countries, on average, then granted European patents from other industries.

What’s more, life science applications tend to contain the highest volume of text for translation.  Taken together with broad filing strategies, the Unitary Patent would appear to present a tremendous opportunity for life science organizations to reduce costs.  In an interview published in September 2013, European patent attorney Dr. Aloys Hüttermann singled out life science companies as potentially the biggest beneficiaries of the new system.

Interestingly, though, there are two edges to this sword, and both cut most sharply in the case of life science—and especially pharmaceutical—companies.  “Observers have… labeled the Unitary Patent as a ‘gift for the pharmaceutical industry’,” Dr. Hüttermann noted, “although others have…[called] it a ‘Danaan gift for the pharmaceutical industry’, given the fact that a central attack is possible.”

Dr. Hüttermann is referring to the possibility of central revocation by the new UPC. Under the current system, patents are litigated separately in national courts, so one jurisdiction’s finding of invalidity is not necessarily “game over” for the rest of Europe.  Under the UPC, a single court can invalidate a patent across all of Europe in one fell swoop.

The result is something of a catch-22 for companies for whom the fundamental importance of patent protection necessitates broad jurisdictional coverage.  These companies stand to realize the greatest benefit from reduced translation costs under the Unitary Patent; but availing themselves of that benefit potentially endangers that fundamentally important protection across Europe.

The prevailing attitude expressed by practitioners we’ve spoken with is caution, even among those who typically pursue narrower coverage.  In fact, several of our clients already eschew European patents to avoid the possibility of central opposition, instead filing PCT national phase or direct national applications in each country separately.  After the transitional period, this will be the only option for organizations wishing to avoid the UPC’s jurisdiction.

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