To Ratify or Not to Ratify?

Each EU Country Makes its Own Decision to Join or Not to Join the Unified Patent Court Agreement.

The article is based on a recently published report on the impact of the European patent reform on Finnish companies. A large part of the report was based on interviews and a survey conducted among patent active Finnish companies.

The aim of the suggested Unitary Patent is to facilitate and lower the costs of geographically more extensive patenting in Europe, and the Unified Patent Court (UPC) aims to reduce parallel patent litigation suits conducted in several EU countries and improve predictability and legal certainty in the enforcement of the patents.

The new system enters into force in participating member states when 13 states have ratified the Unified Patent Court Agreement (UPCA). These states should include France, Germany and UK. The UPCA has been signed by 25 EU member states. Spain and Poland have decided to stay outside of the system. Italy will not take part in Unitary Patent but has signed the UPCA. It is predicted that the new patent system will launch no earlier than the end of 2015 or in 2016.

Each EU member state may decide independently whether or not to join the system. As regards Finland, the ratification would have two effects:

1) all Unitary Patents will also be in force in Finland; and

2) the decisions of the UPC will be enforceable in Finland as well.

So each EU state has the opportunity and good reason to weigh up the advantages and disadvantages associated with the ratification. Even if the reform in its entirety would be considered as an improvement, the decision not to ratify may prove to be more advantageous for a single country. This is due to the fact that everybody, even Chinese or US companies or other companies from non-EU countries, may use the system within the participating member states.

Many More Limiting Patents?

Should Finland ratify the UPCA, all the Unitary Patents will automatically be in force in Finland. As some of the patentees taking advantage of the Unitary Patent would not have validated the traditional European patent in Finland, this new option will increase the amount of patents in force in Finland. Patents in force would restrict companies’ freedom to operate on Finnish territory.

Foreign companies would have an opportunity to enforce their Unitary Patents in UPC also as regards alleged infringements taking place in Finland even though they themselves do not operate here. This would increase the risk of patent infringement and litigation, which would be an extra burden for domestic companies. In order to mitigate these risks, the domestic companies would have to increase investments in patent monitoring.

The risks involved with the possible flood of patents will depend on the future popularity of the Unitary Patent and the eagerness of the foreign companies to enforce their patents.

At the UPC, Stakes Are High

The functioning of the Unified Patent Court will affect the ways the Finnish companies’ foreign competitors will try to enforce their patents.

The UPC provides a patent holder with an opportunity to enforce a patent in the whole of the UPC area in a single litigation. This may be a huge advantage compared to the current system. However, this all will also increase the risks involved with the litigation. In the UPC, all eggs are in one basket: so you may lose or win a lot in a single litigation.

In the case of revocation actions, patent owners may lose patent protection in all of the participating member states. In the case of infringement actions, alleged infringers may have to stop their infringing activities in all of these states.

If Finland takes part in the new patent system, an injunction against a Finnish company granted in any UPC division would have effect in Finland too. If the company has manufacturing facilities in Finland, the injunction would also prevent the company from conducting infringing activities at the Finnish factory.

Nobody knows how well the system will work in real life or how popular it will become. Some have expressed fears that the competition between different UPC divisions (“forum selling” or “forum promoting”) would render the court, or at least some of its divisions, too friendly to patent-holders.

For example, some divisions may grant injunctions more easily than others. Some divisions might “bifurcate” and transfer the counterclaim for revocation to the central division. In this case, an injunction could first be granted in a local or regional division even though the patent was later revoked in the central division.

Advantages and Disadvantages

In a survey conducted among patent-active Finnish companies, most of the participants considered that the reform will bring them more benefit than harm. In addition, most of the companies held, with some reservations, that Finland should ratify the UPCA and participate in the system.

The survey participants are active in patenting and mostly international companies. For most of them, Finland’s decision would not have any great impact. In any case, they would have to adopt the new system in other participating member states. Finland would be one country among the others.

In addition, some of the interviewees held that Finland should ratify the UPCA because the pressure caused by the Unitary Patents in force in Finland would increase the need to invest in research and development and would also encourage internationalization of the domestic companies.

Some interviewees stressed the risks involved with a possible negative decision (not to ratify). According to them, these risks are mainly political or caused by indirect effects.

For example, many companies held that the new system would provide greater benefits the more countries take part in it. If Finland were to stay outside the European system, this would be considered as free riding and would be detrimental to Finland’s reputation in the EU.

Some companies also feared that Finnish expertise in terms of intellectual property would be left behind should Finland not take part in the system. On the other hand, many companies have expressed their concerns in terms of the future of the Finnish Patent and Registration Office (PRH) and the expertise possessed by PRH if Finland joined the new system: it is expected that the income of the PRH would significantly decrease if Finland ratified the suggested new system.

Right Time to Talk about Future

Many essential features related to the reform are still under discussion and preparation in Europe. These include the costs involved with the new system among others. Also the drafting of the Rules of Procedure of the UPC is still in progress. We do not know yet how many countries are finally going to take part in the system either.

For these reasons, Finland still has time to consider the options and to discuss the matter.

A wide range of Finnish companies, including their top management, and other stakeholders should take part in the discussion.

Each company should also weigh up the pros and cons of the new system and Finland ratifying or not ratifying it. Every innovative company should also update its own patenting and patent litigation strategy, as well as the terms of the contracts included in the licensing portfolio of the company, to meet the challenges of the new system.

Ella Mikkola
Partner

Mikko Nurmisto
Associate

Bird & Bird Attorneys Ltd
Helsinki

The Report on Impact of the European Reform

Confederation of Finnish Industries (EK) commissioned a report on the impact of the Unitary Patent and the Unified Patent Court on Finnish companies. The report was carried out by Bird & Bird Attorneys Ltd and Boco IP Oy Ab and it was published in April 2014.

A large part of the report was based on interviews and a survey conducted among patent-active Finnish companies. The survey was sent to 110 companies of which 55 completed the extensive questionnaire. In addition, 15 interviews were conducted.

The patent report steering group consisted of EK, Ministry of Employment and the Economy, The Federation of Finnish Technology Industries, Finland Chamber of Commerce, Pharma Industry Finland, KONE Corporation, Nokia Corporation and Wärtsilä Corporation.

The suggested reform comprises two parts, namely patenting and patent litigation, as follows:

1) the EU patent system reform will introduce the new Unitary Patent that will cover all the participating member states with a single registration; and

2) the Unified Patent Court (UPC) will be a single international court for the enforcement of both traditional European patents and Unitary Patents in participating member states.

The patent report and its summary are available at http://ek.fi/materiaalipankki/julkaisut-ja-selvitykset/.