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19 November 2014Patents

UPC: what’s in store?

Drug companies are scared of it and are likely to steer clear of it. It is too risky and there is too much to lose. This could be how some pharmaceutical companies view the Unified Patent Court (UPC) and the unitary patent, a new system in 25 EU member states that is likely to come into force in 2017.

With its central division split between Paris, Munich and London—the UK capital to hear disputes over the validity of pharmaceutical patents—the regime could revolutionise the EU’s patent regime, saving patent owners time and money as they cash in on central enforcement.

Big risk, big reward

Instead, however, uncertainty prevails. On the flip side of the system, central revocation puts pharmaceutical companies at risk of losing their crown-jewel patents in one fell swoop. These patents, designed to protect sky-high revenues in many individual EU countries, could be wiped out across most of the EU if they were designated as unitary. That means an entire European revenue stream would be compromised: a huge risk for pharma companies.

Not just that, but drug companies are cautious about litigating in an untested court—one that has a new procedure and establishes its own jurisprudence, says Graham Burnett-Hall, a partner at Marks & Clerk.

“There are an awful lot of unknowns. It’s not just a case of validity, but a case of ‘will I get an interim injunction and how will the court approach that?’” he explains of the questions that might be asked. “Until we have jurisprudence, there will be no certainty at all.”

Ironically, reducing uncertainty is listed as one of the major justifications for the UPC. The European Patent Office (EPO), which will handle patent applications before the applicant chooses whether it should be unitary or European, has said a lack of legal certainty is one of the problems of the current system of patent enforcement and revocation.

In this vein, the UPC could be particularly beneficial for smaller companies as they would not need to litigate in several individual jurisdictions.

“If you’re a small biotech company, perhaps with not a huge litigation budget, having a single court decision could be more attractive than suing a big pharma company in many jurisdictions,” says Burnett-Hall. “The risk is that if you lose, you’re toast. It’s a high risk but for some it’s the only realistic option if they can’t afford to litigate everywhere.”

People power

But there continue to be big question marks about the strength of the new regime, particularly its judges, of whom 170 legally-qualified candidates have been selected. The problem is, says Alan Johnson, a partner at Bristows, that the 170 figure doesn’t include enough people from “smaller” states, where there will be local and regional divisions of the UPC.

Therefore, another group of judges from smaller states has been identified as requiring training, he notes, but “we don’t know what they will do about training—there is no budget for it—so who will do the teaching and what exactly will they teach?

“You need people to be released from their day jobs and put on intensive courses or made to sit on cases in another country. But are they going to have adequate knowledge of foreign languages to understand what is going on in the court? How long will it take?” Johnson asks.

“There are an awful lot of unknowns. It’s not just a case of validity, but a case of ‘will I get an interim injunction and how will the court approach that?’”

“It takes a long time to learn your stuff and the idea that you can just learn it by doing courses is a bit tricky, so people are very concerned that the principle of having the best people as judges might be undermined by having good people but who lack hands-on experience. It’s another element of unpredictability and uncertainty,” he says.

Burnett-Hall is more optimistic, however, saying the feedback is that those applying are high quality and represent a “large body of good people”.

“I think we will have a good judiciary,” he predicts. “When you’re dealing with a decision that can affect hundreds of millions of people, a competent court that can make those decisions will be a considerable boost and will make pharmaceutical litigation in the central division an attractive option.”

However, another uncertainty is fees: it is still not known how much a unitary patent will cost to renew. Johnson says the EPO believes the cost will equate to having protection in the UK, France, Germany and perhaps one other country. The office’s president, Benoît Battistelli, has claimed it will be “less than you feared but more than you hoped”, Johnson notes.

The cost of a unitary patent is clearly important for determining its attractiveness, particularly for companies that already seek protection across most, or all, of the EU and will make the greatest savings. As Burnett-Hall notes: “When there is an important pharmaceutical, you will validate it in every country, so for the most part a unitary patent will be cheaper than a European patent validated everywhere”.

Pharmaceutical companies, it seems, will have several factors to weigh up before agreeing to choose a unitary patent: the strength of the UPC, the ability of the judges, and the price of renewing a patent. It will be a tough decision, and quite possibly a risky one. But one factor that might tip the balance in favour of staying out of the system is the lingering uncertainty surrounding supplementary protection certificates (SPCs). Specifically, it is unclear how SPCs will fit into the new system; a situation Johnson describes as “massively complicated”.

SPCs

SPCs are applied for and enforced nationally at the moment, but businesses are wondering whether this practice will continue in the new system, Johnson says. That’s because if a company has a unitary patent, it would seem “odd” to have a non-unitary SPC that follows it. However, because the relevant SPC regulations are seen as “too difficult to deal with”, Johnson says, it seems that the status quo will remain and there will be no unitary-style SPCs.

“If that continued to be the case, I’m not sure a lot of pharmaceutical companies would have a problem with it,” he explains.

“But they might worry that in ten years’ time you would have a situation where the EPO sets up a division that deals with the grant of SPCs for unitary patents and they have no idea whether that body does so efficiently, timely and sensibly, or what the route of appeal to the Court of Justice of the European Union (CJEU) would be,” he says.

To add to the uncertainty, the EPO is not currently answerable to the CJEU, which represents a “major constitutional problem” according to Johnson. “It’s greatly feared that if the EPO is given the power to grant unitary SPCs then someone would say that it is unlawful and strike down the agreement. It’s a very messy and complicated situation.”

He adds: “The theory at the moment is that individual offices will carry on granting these purely national rights, but you would still have the curious situation where all SPCs for unitary patents would have to be litigated in the UPC, so really no-one knows how it will work and it is possible that changes could be made to this aspect of the system in the future.

“Given that the SPC period is when sales are at their highest, pharmaceutical companies will be particularly cautious about going down the unitary patent route without really knowing how the incredibly valuable SPCs will be treated in 20 or more years’ time.”

The popularity of the unitary patent and the UPC appears to be in the balance, says Burnett-Hall. One theme that does seem clear, however, is that companies are understandably cautious about them. Despite this, he provides the hypothetical example of a US company rejecting a selection of state-registered patents in favour of a whole national one. Likewise, he says, “when I want a patent in Europe, I want one covering it as much as possible; why would I not?”

He continues: “The answer is cost, uncertainty and so on. If the pricing doesn’t work, if the judges give ‘Mickey Mouse’ decisions, if there are horrendous delays, you will be reluctant to use the court.

“But if the court shows it is competent and cases are dealt with justly and in a reasonable time, why wouldn’t you want a unitary patent? That is just the same as people deciding in which courts to litigate in Europe,” he says.

For Johnson, however, the outlook is simpler: “For a few years after the system goes live, you will see very few of the major pharmaceutical companies, and certainly the ones in the US and EU, going down this route. I’m sure this is not what the commission wants to hear, but that is the reality.”

What all of this discussion neglects, of course, is the UK’s involvement in the UPC and therefore the location of the pharmaceutical segment of the central division. As promised by Prime Minister David Cameron, the UK will hold an ‘in-out’ referendum on EU membership if his Conservative Party wins the general election in 2015. If the UK votes no—still a huge if—just what would that mean for the country’s membership of the UPC?

Brian Cordery, partner at Bristows, assisted Alan Johnson with his commentary.

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