UPC opt-out – a strategic balancing act for pharma

The UPC will have exclusive jurisdiction for disputes concerning new unitary patents (UPs). After the end of the seven-year transitional period,¹ this will include classic European patents (EPs) and supplementary protection certificates based on the EP that have not been opted out.² During the transitional period – which may be extended to 14 years – there will be shared jurisdiction between national courts and the UPC for litigation of classic EPs, unless an opt‑out is filed, in which case only national courts will be competent.

There is no definitive answer as to whether life sciences companies should, or should not, opt their EPs out of the UPC. Much depends on the individual patent and scenario. Nevertheless, the recent indication that the UPC has a planned start date of 1 June 2023, with the ‘sunrise period’ during which opt-outs can begin to be filed planned to start on 1 March 2023, gives renewed impetus to refining opt-out strategies.

In(novators) or out?

UPC decisions will have effect across all participating Member States, and potentially beyond if the UPC adopts a broad interpretation of the cross-border provisions in the Brussels Regulation.³ This will be attractive to larger pharmaceutical innovators with valuable patent portfolios as well as smaller medical device manufacturers, for whom patent litigation may be less familiar. UPC first-instance decisions should be handed down within 12-18 months, providing earlier commercial certainty in a more cost-effective manner than multiple national litigations (although national litigation in non-participating countries, such as the UK and Spain, may still be required).

Central relief may be a double-edged sword for patentees. It risks valuable patents being revoked across all participating Member States. Consideration should be given to whether valuable patents should be subject to an untested system. UPC judges, who have now all been appointed and have considerable patent litigation experience, will no doubt strive to adopt a fresh approach, but early decisions may be unpredictable, on both procedural and substantive issues.

This risk can be mitigated by opting an EP⁴ out of the UPC, instead being subject to the exclusive jurisdiction of the national courts.

No one-size-fits-all approach

It may be an oversimplification to opt all business‑critical patents out of the UPC and keep only a few less valuable patents in to test the waters. On the contrary, keeping stronger patents, eg, compound patents, in and opting less robust, second‑medical‑use patents out may help favourably shape the jurisprudence.

This strategy may be motivated by the fact that, at least early on, there will be no harmonised body of UPC case law, and different UPC judicial panels may approach issues differently. While the UPC may revoke a patent on well-trodden European Patent Convention (EPC)⁵ grounds, the extent to which the judiciary will be influenced by existing national and EPO case law is unclear.

Similarly, while the UPC Agreement (UPCA) contains provisions concerning the extent of patent protection,⁶ there is no case law yet on how to apply them to some of the complex issues that have come before national courts, such as the doctrine of equivalents (ie, that a product or process equivalent to the claimed invention may infringe). As the UPC will base its decisions on multiple sources of law,⁷ the doctrine of equivalents will likely form part of the infringement assessment.⁸ However, this doctrine has been interpreted differently by different Member States, resulting in conflicting decisions. This may benefit either the patentee or alleged infringer, depending on the factual matrix.

While a broad strategy of keeping some patents in and opting others out may lead to a divergence of UPC and national decisions, multiple litigations may encourage earlier settlement.

Leveraging evolving opt-out strategies

The balance in favour of or against opting out may shift in line with evolving business objectives or the factual landscape, and the patentee’s initial decision is not necessarily set in stone.

An opt-out can be filed in the ‘sunrise period’, which is planned to start on 1 March 2023, three months before the UPC opens and then at any time during the transitional period.⁹ Therefore, patentees may prefer to wait and leave both options open until the case law is more developed or to make it difficult for competitors to know where to expect litigation. This is not without risks however, because if a competitor commenced proceedings in the UPC in the interim, opt-out would no longer be available,¹⁰ as the patentee would be ‘locked’ into the UPC and forced to defend the patent there (though national enforcement actions would still be available).

Opt-out strategies may evolve, and the patentee has the discretion to change their mind and withdraw an opt-out at any time.¹¹ However, this is a one-time opportunity: once an opt-out is withdrawn, a patentee cannot opt out again.¹² If a patent is opted out and a revocation action commenced against it in a national court, the opt‑out cannot be removed and the patent would be locked into the national system. Challengers who want to avoid the risk of being sued before the UPC on the basis of a patent being opted back-in at the last minute, should consider filing pre‑emptive national litigations to lock the patent out of the UPC.

While a patentee has a large degree of control over opt-out, competitors can monitor opt-out filings on the UPC Registry and use this information to shape their own litigation strategy. This may include commencing litigation earlier to lock a patentee into either the UPC or national courts, depending on the launch at risk strategy.

A dual jurisdiction

During the transitional period, there is dual jurisdiction in respect of EPs,¹³ which may be litigated in either the UPC or the national courts of the participating Member States unless the patent is opted out. This is important for both innovators and competitors, who can leverage the advantages of territorial markets and each system depending on the scenario.

The dual jurisdiction may provide opportunities for potential infringers to avoid or delay a UPC action by filing a national action – a ‘torpedo’. This is because where proceedings involving the same cause of action and between the same parties are brought in courts of different Member States (including the UPC), any court (including the UPC) other than the court first seized shall decline jurisdiction. Litigants may deploy torpedo‑type actions in the UPC to gain a strategic advantage, for instance by seeking a declaration of non‑infringement before national courts in order to block or delay a subsequent enforcement action before the UPC.

The risk of preliminary injunctions

UPC preliminary injunctions (PIs) will be a powerful weapon for patentees against alleged infringers, particularly as the UPC has the power to grant injunctive relief over a large market.

The UPC framework provides general PI guidance. Under the UPC rules, the court has the option, but not the obligation, to (i) weigh up the parties’ interests (including the potential for harm)¹⁵ and (ii) satisfy itself with a sufficient degree of certainty that the patent is valid and infringed.16 The court must also consider whether the applicant has unreasonably delayed.¹⁷ UPC judges will therefore have considerable discretion on which criteria should carry more weight in the test. PI tests vary nationally, including different thresholds for determining the risk of imminent infringement or the likelihood of the patent being valid, and approaches to the proportionality of such relief and the balance of convenience. The quality and consistency of UPC PI decisions will be influential in determining whether patentees will engage with the UPC.

However, defensive tools are available to enable competitors to redress the balance. Protective letters (a pre-emptive brief filed with the court by a potential defendant to outline why any application for provisional measures¹⁸ should be rejected) may be beneficial to counter ex parte PIs or seizures, which are possible under the UPC rules, although it is uncertain what the practice will be in this respect.

Leveraging UPC procedural and evidential tools

UPC procedural and evidential tools will be important in the life sciences space. While a patentee may know from the Summary of Product Characteristics (SmPC) that a competitor product is manufactured or kept somewhere in Europe, they are unlikely to know precisely where. The UPC may allow a patentee to ascertain information about generic and biosimilar manufacturing processes and supply chains throughout Europe, using tools such as the power to order inspection of premises and preserve evidence (similar to the French saisie‑contrefaçon).¹⁹

The extent to which such tools are used in the UPC remains to be seen, as does the availability of innovative remedies such as Arrow declarations, which are not explicitly foreseen in the UPCA. An Arrow declaration is a discretionary remedy that sets out that a particular product or process was not new or was obvious at a specific point in time, which can be of use to companies who manufacture a product or process that may otherwise be said to infringe a patent with a priority date after the date of the Arrow declaration.

Arrow declarations are useful for generics or biosimilars as they give commercial certainty that a product may be launched without the risk of a later infringement action. Arrow declarations have been deployed in the UK and the Netherlands, and it will be interesting to see whether they feature in the UPC, which may make the forum more desirable to such companies.

Generics and biosimilars patents

Some generic and biosimilar manufacturers are taking proactive steps to protect their own patents, particularly in respect of new formulations, manufacturing processes, or medical devices developed for their generic and biosimilar products. This will lead to such companies having to make strategic opt-out decisions in respect of their own patent portfolio.

Patents: a necessary evil?

Further, to date, there have been limited cases of generic manufacturers enforcing their patents against generic competitors. There has also been limited biosimilar litigation in Europe. The UPC, offering a cost-effective central decision over a large territory and the leverage of a threat of a pan‑UPC injunction, may change this.

As we move towards the planned start date for the sunrise period, followed by the all‑important date of 1 June 2023 on which the UPC is expected to become operational, the need for life sciences companies with operations in Europe to revisit and take a flexible approach to opt-out strategies is reinforced. 

References/Endnotes

1. Article 83(1) UPC Agreement (UPCA)
2. Article 83(3) UPCA
3. Regulation (EU) No 1215/2012 of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast)
4. Opt-out is not available for UPs
5. Articles 138(1) and 139(2) of the EPC
6. Article 25 to 30 UPCA
7. Article 24(1) UPCA
8. Article 69 EPC and the Protocol on the Interpretation of Article 69 EPC
9. Unified Patent Court. Adjustment of the timeline – Start of the Sunrise Period on 1 March 2023. Available from: https://www.unified-patent-court.org/en/news/adjustment-timeline-start-sunrise-period-1-march-2023
10.  Article 83(3) UPCA & Rule 5.6 Rules of Procedure (RoP)
11. Article 83(4) UPCA
12. Rule 5.10 RoP
13. Article 83(1) UPCA
14. Article 29(3) Brussels Recast
15. Article 62(2) UPCA & Rule 211(3)
16. Rule 211(2)
17. Rule 211(4)
18. Rule 207 RoP
19. Article 60(3) UPCA; Rule 192 RoP