Hogan Lovells

UPC - What is it going to cost?

Background

1. The present system of European Patents has been criticised as being too expensive for SMEs.  This is largely due to the perceived need to litigate a European Patent in multiple jurisdictions, which is a consequence of it being a bundle of national rights granted centrally by the EPO. 

2. The agreement that has just been made is that we shall have a Unitary Patent and a Unitary Patent Court.  These Unitary Patents will live or die in all European states together (with the possible exception of Italy and Spain).  Equally, decisions on infringement rendered by the Unitary Patent Court will bind all European states (with the possible exception of Spain).  

3. Although agreement has been reached, it is not clear how the rules will work.  As such, we do not know how much the new system will cost to set up or use.  What can we predict about the likely costs and the impact of those costs based on what we know so far?

What is it going to cost?

4. Unlike in the present system, a unitary patentee will be unable to choose the jurisdictions in which he gains protection. Therefore, he will not be able, by selecting a subset, to reduce the initial costs of having his patent granted.  Nor will he be able to reduce the costs of maintaining his patent after grant, even if it turns out that protection in most of the states is not needed. 

5. Will the average cost of the unitary system be higher or lower than in the present system?  Currently, contracting states pay for their own court systems.  In the unitary system, the intention has been that there is to be local divisions of the Unitary Patent Court, possibly some regional divisions (which may replace local divisions), and a central division. (We now know that there will be three branches of the Central Division which deal with specified scientific disciplines located in London, Paris and Munich)  It appears to be the intention that each of these divisions is to have a minimum of three qualified patent judges.  These judges will have to be found and, to the extent that there are not enough of them, new ones will have to be trained.  They will all need to be taught about the new system.  The extent of the infrastructure and personnel required would appear to be greater than for the current system; it seems reasonable to assume that it will also be more expensive.

6. Who, then, will pay?  The EU has made it clear that it will not pay.  This means that the Unitary Patent Court will have to be self-funding. 

7. The Unitary Patent Court will presumably raise funds from patent issue fees and from the cost of issuing proceedings.  It is envisaged that Member States will contribute to the start-up costs of the Court.  However, the Unitary Patent Court will struggle to discount fees charged to litigants by calling for special contributions from the Member States - there is no obvious way of apportioning such contributions in a unitary system and poorer countries may object to paying the same as the others.

8. Most users - those who do not patent in all available states - are therefore likely to have to pay higher fees than they do now.  Will this reduce the application rates for Unitary Patents?  Probably, but the Unitary Patent Court might choose to subsidise the patent application fees by increasing the fees for issuing a claim.

9. How will the fees to issue a claim be worked out?  Will the amount be based on damages, a reasonable royalty rate, or something else?  Whatever the measure, any large up-front payment is likely to prolong litigation.  Why settle early when you've already had to pay, especially since that amount will inflate any settlement figure required of a defendant (encouraging him fight harder) and may not be recoverable in the event of a win? 

10. The actual use of the court once litigation has started may contain its own costs, especially if parties have to travel to distant courts and pay for translation services.

Summary

11. On balance, it seems that larger companies who have always needed protection in all European jurisdictions may therefore find the new system more efficient.  Litigious companies may also find that the new system benefits them since a finding of infringement across Europe is a significant threat.  This is especially attractive if the company does not trade in Europe, as a defendant cannot retaliate in kind.

12. SMEs may take the view that what they need is protection in only a limited home market and so stay with normal patents or European Patents with limited designations.  When it comes to litigating SMEs may also find that enforcement in one or two key markets is more cost effective - what is the point of paying for a Europe-wide injunction when your market is only in Member States?  Patent holders will therefore need to think carefully about whether they want their existing patents to be opted out of the unitary litigation system. And until we know the fee structure we cannot begin to make that assessment

By associate Dominic Hoar, Hogan Lovells

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