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16 December 2015Patents

Unitary Patent: Protecting the crown jewels

Since the concepts of the unitary patent and the Unified Patent Court (UPC) were first floated, the pharmaceutical industry has been sceptical about their benefits. There is a sense that opting so-called crown jewel patents into a system that could knock them out in one go was simply too much of a risk.

This is why, according to Richard Willoughby, partner at D Young & Co, a firm of patent and trademark attorneys, the industry lobbied for an-opt out agreement for patents.

“Their biggest concern is the risk of a centralised revocation proceeding. For its products, the industry relies on a limited number of patents,” he says.

We seem to be heading closer to the implementation of the UPC. In September, the UPC’s preparatory committee announced that the court will begin operating at the beginning of 2017. However, some hurdles remain. Only eight of the 13 countries needed to ratify the agreement have approved it. There is also the cumbersome issue of the UK’s referendum on its EU membership, which may delay things.

Despite the UPC’s getting closer, pharma’s attitude towards it remains cautious. At the Chartered Institute of Patent Attorneys Congress held in London in October, David Rosenberg, vice president of intellectual property policy at GSK, said the decision on which patents to opt into the UPC will be done on a “case-by-case” basis. Jürgen Dressel, head of global patent litigation strategy at Novartis, said it was unlikely the company was going to opt in its “crown jewels” immediately.

Such caution is in contrast to the enthusiasm of the high-tech industry. Nicole Jadeja, partner at law firm Rouse, attributes the caution to a higher risk for pharma in litigating in a single forum. Nevertheless, she says, the pharma industry will feel the need to get involved at an early stage.

“There is a sense that big pharma want to be involved in the beginning to some extent so they can have a say in shaping the system.

“The patents are their crown jewels and it wouldn’t be sensible to put them in an untested system. But if tech companies opt in some of their patents and begin testing the system, pharma will feel it is missing an opportunity to shape the system,” she adds.

Showing your wares

Opting out certain patents may also have further disadvantages for pharma. Wouter Pors, partner at law firm Bird & Bird, says it then “becomes too obvious” which patents are a company’s strong and weak ones.

“You are labelling patents for your competitors, because you’re saying the ones we have opted in are strong and the patents opted out are not so strong, and that may cause competitors to attack the validity of such patents for the simple reason that you opted them out,” he adds.

Willoughby sees it differently. He says the decision on which patents to opt in or out will be based on the commercial value of the patents.

“It will be difficult to say whether they’re weak or not; the concern will be when they identify patents that cover existing products but also potentially other products of interest. The concern will be that competitors will know what areas of research they are interested in rather than whether a patent is strong or weak. The reality is that they will be looking at patents that cover their existing and future candidate/commercial products.

“It is difficult to say if a pharma patent is weak or vice versa if it is opted out. The opt-out will relate to commercially critical patents. It will be along those lines. For existing products, it will be straightforward, but for candidate drug products, pharma companies do not yet know how successful the product will be,” he adds.

The creation of the unitary patent will offer pharma the chance for protection in a market covering almost 420 million people across 26 countries. And instead of dealing with the varying judicial procedures across each member state, the advantage of the UPC is that it will streamline those differences into one system.

Many have endorsed this advantage and highlight that it may mean the EU becomes the centre point for litigation and enforcement efforts. Pors, an enthusiastic supporter of the UPC, is highly confident pharma will get involved in the long term. He cites the quality of the judiciary as one of the big attractions of the UPC.

“You are labelling patents for your competitors, because you’re saying the ones we have opted in are strong and the patents opted out are not so strong"

“There are a group of 19 candidate judges that are all very intelligent and highly motivated. They look forward to a new challenge because it will be easier to get more interesting and complex cases in the UPC than it is in their own countries,” he says.

Pors has been involved in the education of the judges, so has first-hand experience of the types of judges who will be working in the UPC.

The result, he argues, is that “UPC decisions will not be unpredictable and not that risky”. Predictable judgments are, Pors says, the most important factor in attracting pharma to use the UPC.

“What I can see companies doing is litigating in the UPC and getting a judgment within a year,” he adds.

Furthermore, he says, the UPC can work as a testing ground for potential US litigation.

If a party is successful in the UPC then this will give it a pretty good idea of what the outcome in the US might be, although of course there are differences within both legal frameworks.

“The advantage of the UPC is that litigation will be a fraction of the cost [that it is] in the US. You can get a judgment within a year and you won’t have to deal with juries, just experienced judges.

“If you’re able to secure an injunction across 25 countries then your competitor will have a hard time surviving,” Pors says.

What of the trolls?

The former US secretary of defence Donald Rumsfeld’s “known unknowns” quote has been reiterated ad nauseam, but on the UPC it serves as a neat summary of where pharma is at. One of the known unknowns is how non-practising entities will use the system. Many have voiced concerns that a single forum covering such a large market for litigating in may attract abusive behaviour.

“Right from the start everyone has been concerned about what patent trolls will do,” says Pors, “but one person working within pharma told me that she’d rather defend against a patent troll before the UPC than in a US court. I think this is a sensible remark.

“While there are no hard-and-fast procedures preventing patent trolls litigating in the UPC, all the candidate judges are very much aware that they need to deal with them, and this is going to happen on a case-by-case basis.

“I’m convinced that this court will not be a patent troll-friendly court,” he adds.

The unknown unknowns may come in the guise of those using the UPC for financial gain. This year, the US pharma industry has been rocked by attempts of hedge fund firms, most notably Kyle Bass’s Hayman Capital Management, to invalidate patents covering valuable drugs. The hedge funds have been using the Patent Trial and Appeal Board (PTAB) to target such patents, and while they have had varying degrees of success, discouraging them has been a difficult task.

Ed Kelly, partner at law firm Ropes & Gray, spoke at the Global Pharma IP Forum in London in September about how the creation of the PTAB can serve as a model for the UPC. The PTAB, set up in 2012, is a popular forum for parties seeking to invalidate patents. But, Kelly warned, it has attracted groups trying to use it for financial gain, a problem nobody had anticipated when the PTAB was introduced under the America Invents Act.

“What you are worried about now regarding the UPC may not be the problems you deal with once it is introduced,” he said.

Willoughby says that the biggest concern for pharma is a patent challenge by a generic company, the ‘known known’, that will come with the UPC.

“Any challenge is a great business concern,” he says.

Understanding this, pharma companies will perhaps already have an eye on how they defend the patents they opt into the system, be it from a hedge fund or a generics company.

The UPC’s preparatory committee’s recent announcement has created a sense that the beginning of the new system is imminent. But clarity is still needed. So far, the rules do not outline whether pharma companies can obtain a supplementary protection certificate for a unitary patent.

Despite the long journey so far, Willoughby says he hasn’t seen pharma’s attitude to the UPC change in a “meaningful way”. There is “too great a commercial risk” and companies will want to see how the “system beds down”, he adds.

Nevertheless, as Willoughby notes, the question for pharma is a simple one. “If the financial downside of having a patent revoked in a UPC proceeding is greater than opting in a patent, then the decision on to what extent they opt in or keep out is straightforward.”

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