Scotland: a patently obvious choice?

The new Unitary Patent and Patent Court system is set to revolutionise the patent regime in the UK and Europe and is intended to supersede the current one entirely. This new regime will necessarily affect Scottish businesses and our clients as they rely more and more on patents to protect their innovative technology, products and services to grow and remain competitive, as well as to have a strong patent portfolio to attract funding and investment.

Scotland punches far above its weight as a centre for excellence for innovation. In particular it is home to many successful intellectual property-rich businesses operating in sectors such as oil, gas and renewables, life sciences, IT, aviation and defence, and food and drink. Its universities are recognised internationally as hubs generating new technology and then successfully exploiting it through spinout companies. Most will be relying on patents to protect their valuable technology and innovation. They need to protect their R&D investment by securing and enforcing their patents.

It is therefore vital that we understand the significance of this entirely new regime for our clients and the economy, as well as take the opportunity which still exists to shape it into an optimum form for both local Scottish business and those choosing to do business here.

A long time coming

After over 40 years of false starts, we now have a new legal framework providing for the possibility of obtaining a unitary patent with potentially Europe-wide effect, which can be litigated across its entire geographic scope in one central court. Business Secretary Vince Cable is quoted as claiming that the “unified patent regime is a good result, as it will mean defending a patent across Europe will now be much simpler… We estimate benefits to the UK of around £200m a year”.

Although no definite date has been fixed for its introduction, it is likely that the new court system will come into effect in 2015 at the earliest. It is important that all organisations which already have European patent protection in place, and/or are considering applying for new or additional patent protection, are aware of the development and consider the potential impact of it upon them and their patenting strategy.

Fundamental change

At present in Europe, an applicant can choose to apply either for national patents (such as a UK patent) or for a European patent validated in selected European countries where protection is required. National and European patents (effectively a bundle of national patent rights) are enforced and their validity assessed in local member state national courts. For example in the United Kingdom, if infringement of a UK or European (UK) patent is taking place in Scotland or the infringer is based there, an action for infringement can be raised in the Court of Session in Scotland. Validity of these patents can also be challenged in that court.

The existing system has been criticised as too expensive and time consuming, as patents have to be enforced and their validity challenged on an individual country by country basis, with different national courts often reaching different decisions based on essentially the same patented invention. The new unitary patent ("UP") regime will fundamentally alter the scope of patent protection in Europe as well as the mechanics of enforcing new UPs and existing European patents. Once the new regime is in place, an applicant can choose to seek a UP which could be enforced in one central court, potentially throughout 25 European member states. Although no definite date has been fixed for its introduction, it is likely that the new system will come into effect in 2015 or, more realistically, 2016.

Unified court, several seats

The new UP, and also existing European patents (subject to a seven or potentially 14-year opt-out transition period), will be dealt with under a new UP court system. This will comprise a new European Court with jurisdiction to cover the entire geographical scope over the 25 signatory member states. Pan-European injunctive orders to stop infringement will be possible, as will a central attack on the validity of the entire UP in just one court. This will, for example, avoid the current need to raise separate legal actions in the various national courts where infringement is occurring and where national or European patents are in force.

The UP Court of First Instance will comprise a Central Division as well as local and regional divisions. The Central Division is already divided between London (dealing with pharmaceutical and life sciences patents), Munich (dealing with mechanical patents), and Paris (dealing with all other types of patented inventions). Depending on the number of patent disputes being dealt with in a particular member country, countries can have up to four local divisions. In addition, countries can group together to establish regional divisions. There will also be a Court of Appeal, to be located in Luxembourg.

The precise structure and location of the various courts making up the overall UP Court is yet to be fully determined, and there is now a window of opportunity which could be grasped to support and apply for a local division to be situated in Scotland.

There will be potentially a large choice of courts in which to raise actions for UP infringement. The issues of jurisdiction and choice of court are not straightforward. However a key point which is relevant for Scotland is that an action can be brought in a local division either where the alleged infringement has occurred, is occurring or will occur, or where the infringer is based or carries on business.

In cases where there is neither a local nor regional division, the action must be brought at the appropriate branch of the Central Division, which could be in London, Munich or Paris. It is possible for parties to agree where the action should be dealt with, and in certain circumstances either of them can apply to have the action transferred from a local or regional division to the relevant branch of the Central Division. Absent any infringement proceedings being in play already at a local or regional division, and/or the agreement of the parties, any declarations of non-infringement or validity attacks must be made at the Central Division.

As a result there is considerable scope for forum shopping, and a concern that the system could be abused by patent owners deliberately choosing a court which has developed (whether justified or not) a reputation for being patentee friendly and seeking a pan-EU interim injunction there. A Scottish company could find that its main line of business is stopped by a court order obtained in Germany, France or Bulgaria, as just a few examples. This could shut down its operations in the UK and any trading in other EU states covered by the UP Court.

Pressing for a Scottish division

It is likely to be possible to obtain additional local divisions within the UK and perhaps even as many as four. There is no good reason why the Court of Session could not be designated as a local division UP court in Scotland. The Law Society of Scotland has already raised this with the Scottish peers in the House of Lords, in the shape of a proposed amendment to the Intellectual Property Bill (which has since received Royal Assent). That bill lays the ground for a Unitary Court to be set up in the UK. Whilst currently there is no UP local or regional court division pencilled in to be situated in Scotland, there is still scope for this to happen.

With the real possibility that the new UP system will in a short space of time largely replace existing European patents, and possibly also national UK patents in the longer term, it is an option that should be pursued if Scottish companies are not to be deprived of their current home ground local enforcement option. Those who previously could have litigated in the Court of Session may be forced to litigate and defend themselves elsewhere in the UK, and possibly much further afield in Europe, with the added costs, business burdens and uncertainty that would create.

Foreign rules?

At present the draft rules for the UPC remain controversial in a number of areas, and adopt methods foreign to our current way of litigating patents.

The consultation on the rules of procedure for the Unified Patent Court was launched on 25 June for three months, closing on 1 October 2013. It can be found at
www.unified-patent-court.org/consultations

Irrespective of the location of designated local or regional divisions, these rules and their final shape will impact on and be important for Scottish companies. As such there is still an opportunity to be involved in their development and shape them into optimum form.

What should Scottish business do now?

Scottish businesses should take advice from their IP/patent advisers on their best potential strategy and steps they should or need to take, as some key decisions will need to be made. The main choice will be whether to ignore the system at least for now, in terms of a company’s own patent portfolio, or to embrace it. Opting out of the UPC, and effectively buying time for any existing EU patents (for which a fee may require to be paid) is possible, as is applying for national patents in jurisdictions of choice. The latter is the only option to guarantee the ability longer term to litigate in local non-UPC courts.

Operators in different industry sectors will have different perspectives on what is the best route forward for them. For example, a concern that a new UP can be invalidated across the board in Europe by one UP Court and in one decision could deter a number of industry sectors from deciding to become part of the new system at present. Costs will be an important factor, and despite Vince Cable's pronouncements on the likely cost savings, it is not yet known what the actual cost implications will be. The cost of renewal fees will be of fundamental importance for smaller businesses. The new system and its courts are meant to be self financing, and as yet there has been no clarity given about the true cost of being part of the system.

Business owners need to be aware of the new system, how it is shaping up, and what it is likely to mean for them and their business. They will be affected by the new UP system whatever the final outcomes on the shape of its rules and procedures, as well as the final allocation of the UP Courts. Thus it is important that they and their advisers are aware of the new regime and how it is developing.

Whilst the precise enforcement and operation of the new system remain to be seen, there is a risk that SMEs (which make up the vast majority of the Scottish corporate scene) based in Scotland could be forced to have to litigate their unitary and existing EU patents outside Scotland, irrespective of where their opponent is based or is infringing. They could also face being sued for infringement in a variety of foreign locations and a considerable distance away from their operating base. In the absence of a Scottish local or regional division of the UPC, there will be no scope, as there is at present, to bring an action in the Court of Session for patent infringement or invalidity.