The ostrich and the meerkat: a meditation

Originally published by The In-House Lawyer magazine, Simmons & Simmons has been granted permission to make this content available to elexica subscribers.

Scene: the Legal Department of Plains, plc, the office of The Ostrich, Head of Business Development and Licensing. Enter The Meerkat, Head of Patents

Meerkat Have you heard the latest about the new pan-European patent …

Ostrich (sighing) Oh no, not you again! You’ve been bringing me “the latest” about that wretched patent for the last ten years. It’s never going to happen.

Meerkat But that’s the latest news. It really is going to happen. They are now talking about getting enough ratifications by autumn this year.

That’s right. The ratification process for the Unified Patent Court (UPC) Agreement is proceeding. Nine countries have ratified, and there are only four to go to bring the UPC into being. More than four countries (including the UK and Germany, whose ratifications are conditions precedent for implementation) have indicated to the UPC Preparatory Committee that they are on course to ratify in the second half of 2016.

There will be a four to six month provisional application period during which the judges and court administrators will be recruited and trained. The court will open for business in early 2017.

And from the date when the court opens for business, it will be possible to designated newly-granted European patents as “European Patents with Unitary Effect” - one patent for (nearly) the whole of the European Union. (Spain and Croatia have not (yet) signed up, and some Eastern European countries may delay their ratification.)

Ostrich That’s still over a year away. I’ll have plenty of time to learn what I need to know when I get back from my summer holiday.

Meerkat We’ve started work already in the Patent Group, planning for the opt-out, and making financial models and business plans to help us decide whether to go for Unitary Patents in the future.

Ostrich Of course your group is working on it. But there won’t be anything for my group to do until the court opens and the new patent starts.

Meerkat That’s where you are wrong. The agreements your group is drafting now need to deal with these matters, and where we are licensees we need to see whether our existing agreements give us the rights we want.

When the UPC opens, your competitors can attack all national designations of a European “bundle” patent in one piece of litigation. You can opt out from the UPC to protect some or all of your patents from this central attack. Errors in the opt-out application can make it invalid, so implementing an opt-out decision can involve a lot of work for patent departments, and most have already begun work.

But licensing departments also need to be involved. In every industry, licensees, particularly exclusive licensees, have a vested interest in taking part in the decision-making process for the opt-out and new licences need to cover this now.

Ostrich Oh dear! So we have to do a whole lot of new drafting?

Meerkat Not necessarily. There are just three things to cover for the opt-out: Who decides? Who implements? and Who pays? You’ll also need to agree who decides whether to go for the new Unitary Patent or a traditional European “bundle” patent, but that is probably already covered by your standard provisions about control of patent prosecution.

Ostrich And I assume your group will deal with the “unitary or bundle” decision?

Meerkat Most, but there are aspects you will need to think about.

The Unitary Patent gives coverage in all states signed up to the UPC, for a cost equivalent to the four most popular countries. For the minority of companies which patent in more than four countries, the advantages are obvious. For the majority who stick to “DE FR GB”, those who deal in licensing need to consider whether wider (but less flexible) coverage will be attractive to licensees - this could justify the additional cost of getting and maintaining a Unitary Patent.

Ostrich What about existing licences?

Meerkat If they don’t cover the new system expressly, which they probably don’t, you need to see how the “control of patent prosecution” and “control of litigation” provisions might read on to the new system. And if they don’t, you will need time to engage with licensors to get these issues dealt with.

Ostrich Presumably that applies only if we are exclusive licensees - as non-exclusive licensees we don’t have a right to sue under the patent anyway.

Meerkat That’s another area where things will be different. In the new court, the licence agreement can give a non-exclusive licensee the right to sue in its own name. This may make Unitary Patents more interesting to non-exclusive licensees, which may raise some interesting new dynamics in the negotiation process.

There is not a lot that in-house lawyers outside patent departments need to know about the Unified Patent Court and the Unitary Patent, but now is the time they need to learn about them and address them in the contracts which they are preparing.