UPC Blog Series: Part 4: The UPC and UP: Considerations for SMEs

In this blog series, our experts from different jurisdictions will share their insights on topics that may have received lesser attention in the ongoing lively UPC/UP discussion.

This 4^th piece is about what the UPC/UP reform will mean to small and medium sized enterprises (SMEs).[1] The introduction of a single, unitary patent, the UP, is said to make patent protection across Europe easier and more effective, thereby stimulating and facilitating the protection of innovation. And the establishment of a single court, the UPC, will make it possible via a single decision to put an end to the use of infringing goods and processes across all of the participating EU Member States.

In light of the above, this new system is definitely rich on potential, but there are also risks. Stakeholders will need to understand how the UPC/UP system will operate (compared to, or alongside, the existing system).

Unitary Patent – Will It Bring Cost-Savings to SMEs?

With the UP, the legislator aims at centralising and simplifying the validation, maintenance and enforcement of patents. This is an ambition that is welcomed by most patentees in Europe, not least by SMEs.

Whereas the European Patent Convention (EPC) had managed to centralise the grant procedure at the European Patent Office (EPO), the UP will allow patentees to do away with a need for national registration, translation (in time) and validation. Patentees will be able to obtain and maintain UP protection in 17 (and, in time, up to 25 or even more) EU territories through one single process, with the EPO also acting as a one-stop-shop after a UP is granted.

Applications for obtaining such a European patent with unitary effect must be made within one month of the decision by the EPO to grant a European patent application.

By that time, applicants will need to have assessed whether the new UPs, either alone or in combination with traditional European or national patents, will bring cost savings and are otherwise the right fit for them. The renewal fees over the 20-year life of the UP would be in the region of € 35,500, with an overall cost of approximately € 44,500. This is just shy of the fee for validating a traditional European patent in the 4 largest EPC countries (for a detailed fee chart, please consult: EPO - Cost of a Unitary Patent). Of course, Unitary Patent coverage would be limited to 17 of the 39 EPC member states, meaning that applicants may need to consider EP protection in additional countries (for example UK or Turkey) depending on where their markets are. The additional cost of such parallel validations could inflate the level of annuities.

Currently, many European patents (not just those held by SMEs) are not validated in more than one or a few of the participating Member States. In such cases, a UP may not appear financially interesting. This is especially so when one considers  that such a unitary title comes with a certain geographical and, hence, financial rigidity: its scope cannot be reduced over time. Choosing a European patent, on the other hand, would allow a patentee the option not to renew its patent in one or more of the EPC countries, in accordance with its actual need, and hence to reduce costs.

On the other hand, ownership of UPs with a broad geographical coverage in the large majority of EU Member States may ipso facto constitute a valuable asset that increases the attractiveness of SMEs towards investors and partners, or constitute a source of licensing revenue (e.g., in countries where the patentee itself has no market).

Furthermore, there are certain financial incentives which make applying for UP protection of appeal. For example, SMEs may be eligible for a compensation of the cost for translating the UP. In addition, SMEs in particular may consider the benefit of making a so-called statement on “licence of right” with the EPO. A “licence of right” implies that the UP holder is prepared to allow any person to use the invention as a licensee, in return for appropriate consideration. For patentees making such a statement, a license of right could not only facilitate potential partnerships, but will also result in an immediate 15% reduction in UP renewal fees.

Unified Patent Court – New Enforcement Risks & Opportunities for SMEs

The second limb of the unitary patent package, the UPC, may benefit SMEs as well. The complexity that is sometimes inherent in cross-border disputes under the current patent regime in Europe may have deterred smaller companies from enforcing their rights in the past. The UPC, however, now offers a platform for streamlined and expeditious enforcement of patent infringements or central revocation of invalid patents, all in front of a select group of experienced patent judges.

Whether SMEs will truly be gaining from this new patent litigation highway is another question.

SMEs with activities in one or maybe two countries may have been able to resolve their dispute before the national courts under the current regime. Similarly, SMEs keen on revoking a blocking patent through a centralised action may prefer the EPO opposition route over UPC litigation. In both scenarios, the UPC does offer more options to SMEs, but they would in all likelihood be more expensive. Small and micro-sized enterprises do benefit from a significant 60% reduction in court fees when bringing an infringement action before the UPC, but this is only part of the cost and even then, the UPC fees may be higher than in certain national courts.

Also, the fact of the matter is that SMEs are much more likely to be a defendant than a claimant in a patent dispute. SMEs are often litigation-averse, but should understand that the UPC will increase the risk of being sued or threatened with a suit. The many claimant-friendly traits of UPC litigation (including its pace, the language and forum shopping options and the scope of its decisions) may attract claimants from across the world. In particular, the pace and front-loaded nature of UPC litigation may pose considerable difficulty for less prepared or smaller defence teams. Moreover, SMEs may be unfamiliar with a court system, like the UPC, which risks being required to compensate not only their own counsel and the court fees, but also the prevailing party’s counsel (up to €2,000,000). Legal aid before the UPC is reserved to natural persons.

In that light,  companies, and SMEs in particular, may be well advised to plan ahead. Informing oneself, seeking (specialist) advice before market entry, retaining counsel in anticipation of a dispute, keeping relevant evidence etc., may already prove a great aid. Teaming up with peers or seeking support from a service provider (such as litigation funding) may help to support the financial burden and reduce the risk of being forced to settle against one’s will. SMEs may also consider including IP infringement coverage in their insurance policy.

The risks and opportunities of litigating before the UPC should obviously also be factored into companies’ patent filing and management strategies.

Indeed, the unitary patent package may upset some of the current market realities. While SMEs operating in only certain markets may not currently be worried about a patentee operating a monopoly in other markets, this may change when that patentee starts filing UPs. Given its broad geographical reach, the existence of a UP may provoke a conflict that is non-existent today, and prompt parties to file a revocation action or opposition that may otherwise not have been at issue.

Moreover, it is well-known that the UPC will have jurisdiction not only over future European patents but equally those already granted today (if they are not “opted-out”). As such, ownership of an invalid European patent risks becoming a costly affair overnight. Losing a revocation action before the UPC means that the patentee must pay the court fee and pay some of the opposing party’s lawyers’ fees. Moreover, suffering a revocation of a patent in up to 17 countries in one go could have detrimental consequences for the patentee. Whereas companies with larger IP budgets may have an option to spread the risk by combining UPs with divisional European patents, such a safety cushion is likely not to be affordable for many SMEs. In light of that, and apart from UPs and European patents (which are both prone to challenges before the UPC), SMEs may consider the benefits of filing national patents as an alternative, third option.

In conclusion: while the UP/UPC present interesting features that may definitely become growth factors for innovative SMEs, this new patent package brings along a range of new issues that SMEs must be aware of and address properly now.

***

We hope this blog post gave you some food for thought. You will find the earlier and upcoming parts of this blog series and further information about the UP/UPC system under Bird & Bird’s UP/UPC website.

Read our earlier blog posts here