MPs: Unified EU patent court framework would hurt small biz

Good in theory, but extra red tape will choke Blighty's SMBs

A new court framework that would rule on validity and infringement cases stemming from proposed new unitary patents in the EU would be "prohibitively expensive" for small UK businesses to use, a committee of MPs has said.

In a report analysing plans for the development of a new unified patent court (UPC), the House of Commons' European Scrutiny Committee said that small UK firms would face higher costs than they currently do for challenging or defending the validity of patents or alleging or defending patent infringement claims in court.

Plans to allow inventors to gain cost-effective unilateral patent protection across the EU have been under negotiation for years. In recent months 25 EU countries have moved closer to establishing a new framework around how that system would operate, however. If introduced, inventors would only have to apply once in order to obtain patent protection across the 25 countries, if their application was approved.

Under the plans being discussed by the countries, cases concerning the validity or infringement of proposed new unitary patents would be heard by local, regional and central divisional UPCs where a "multinational panel" of three judges would sit. There would be the opportunity for local and regional UPCs to determine whether cases could be "bifurcated" – where questions over the validity of unitary patents would be determined separately from questions over the infringement of patents.

The central divisional UPC would be obliged to hear infringement and validity cases together. Currently in the UK these issues are tried together when raised in court proceedings.

UPCs would be able to refer questions about cases to the European Court of Justice (ECJ) to help determine the outcome of cases - extending the jurisdiction of the ECJ into patent law in the process.

The European Scrutiny Committee said the court system as planned would negatively impact on small UK businesses.

"This complex structure of the UPC is likely to be far more costly and burdensome for SMEs than the existing system in the UK," the committee said in its report. "A UK SME engaged in cross-border trade may also be required to defend itself against a pan-European injunction for patent infringement in the language of the local division chosen by the patentee."

"How the UPC will be funded is highly speculative," it said. "There are no reliable estimates for litigation costs, but it is clear that a panel of three judges will cost more than a single judge ... We share the concerns expressed by the [patent] professions that the UPC will be prohibitively expensive."

The committee said EU assessments over the impact that the new system would have on SMEs "needs to be urgently revisited."

The location of the central division UPC must be in London in order to limit the negative impact the current plans would have on UK small businesses, and it would be "unacceptable" for the UK to "compromise" on the issue, it said.

"Given our concerns, it is vital that the UK government adopts a strong position reflecting the concerns of practitioners in final negotiations, as well as calling for the Central Division to be in London in order to mitigate the most damaging effects of a unitary EU-wide patent," the committee said.

The Committee raised concerns that the ability of local and regional UPCs to separate validity and infringement rulings on the same patent would result in 'forum shopping', where parties choose where to initiate legal action on the basis of where they think they would be most likely to win. This would likely see Germany selected as a location for legal action on new unitary patents because of its existing bifurcation procedures, it said.

"The proposed UPC has discretion to bifurcate in any particular case, with a requirement that the Central Division will hear infringement and validity arguments at the same time," the Committee said. "But there is no guidance as to how that discretion should be exercised. UK patent professionals are particularly concerned about this. They say that patentees will be advised to file their infringement suits in the local division of the UPC in Germany wherever possible, for the obvious reason that defendants will not be able to raise the validity of the patent as a defence."

"If the German local division finds in favour of the patentee, the judgment will be valid throughout the EU (a national court's decision is limited to national jurisdictions)," it saidThis means an increase in forum-shopping and that Germany is likely further to dominate the market in patent litigation. It will also be particularly inconvenient for small companies, which will have extra expense in dealing with overseas proceedings not in their own language. They may be able to get the suit transferred from the local German division of the UPC to the Central Division, so that infringement and validity can be considered together, but arranging the transfer will itself cause added trouble and expense."

"We recognise that a patent court which represents the traditions of 25 EU Member States, including Germany and Austria, will have to allow for bifurcation, but the probable consequences of this appear to us to be so grave, for the UK in particular, as to question the validity of a unified patent court in the EU in the first place," it said.

The Committee also said it would be "unrealistic" for there to be a requirement that a "multinational panel" of patent law experts rule on cases under the UFC system. Training enough judges in the particulars of patent law to achieve this would not be possible, it said.

Pressing ahead with flawed plans would be preferential to opting out of any new unitary patent framework but it is too early for plans, as currently drafted, to be pressed ahead with, the Committee said.

"It is premature to conclude any agreement on the new system," it said. "Important open issues include ... the fees payable by the users of the new system (this again is vital for SMEs), the allocation of costs and revenues to the participating states (which will play a role in some states´ decision on whether or not to create a local division of the court which in turn again is of importance for SMEs), the draft procedural rules, which presently contain more than 400 provisions, will require an enormous effort to find compromises between the participating states on fundamental aspects of civil procedure law to ensure a harmonized, expeditious and appropriate procedure for all type of cases, and, not least, the amount of recoverable costs that a successful litigant may claim."

"Those issues must not be left for later discussion but should be addressed before any agreement to implement the proposed system is concluded," it said.

Plans to establish a cheaper and more efficient way for inventors to gain patent protection across Europe have been mooted for years. Europe-wide protection is only possible at the moment by validating a patent registered with the European Patent Office (EPO) in each individual country. To be valid in a country a patent must be translated into its language. The European Commission has sought a cheaper system because of what it has said is the prohibitive cost of that process.

In 2010 12 EU member states got together to push for an EU-wide patent system. Under the Lisbon Treaty nine or more EU countries can use the EU's processes and structures to make agreements that bind only those countries. The broad proposals are now backed by every EU country except Italy and Spain.

Under the unitary patent proposals a European patent holder would make only one application to the EPO for patent protection across the 25 EU countries that have signed up to the scheme, with successful patents being initially published in English, French or German and eventually translated into all three languages. Applications for unitary patent protection not made in any of those languages would have to be translated in order to be considered, although applicants would be compensated for the cost of this.

Italy and Spain have objected to the plans, with both lodging legal cases with the ECJ. Spain has said that restricting the language regime to English, French and German was discriminatory whilst Italy has said the plans are unlawful and would distort competition.

The European Commission has previously said that it can cost more than €32,000 (£25,800) in translation and other costs to obtain a Europe-wide patent, compared with an average cost of $1,850 in the US. The Commission estimated the overall yearly cost of validating patents in the EU to be €193m (£156m).

Late last year it looked like a consensus among the 25 countries negotiating the legal framework around the operation of a unitary patent system was forming and that an agreement would be signed. However, final details over some aspects of the framework are still to be resolved.

"Although the theory of a single EU-wide patent - with a single court to administer it - has long been thought desirable, the practice has long been elusive," Bill Cash, chairman of the European Scrutiny Committee, said. "These latest proposals appear, regrettably, to be a further example of this."

"They would increase costs for SMEs and hinder the enforcement of patents within the EU, particularly by giving additional jurisdiction to the [ECJ] and not allowing the invalidity of a patent to be a defence to infringement proceedings. The negotiations have been rushed and effectively excluded the views of European patent professions. We found the responses of the minister, Baroness Wilcox, oddly detached from the evidence we heard on these important points. This appears now to be a damage-limitation exercise but the UK government must bring the practical concerns we heard to the table as negotiations conclude, and in particular ensure that the Central Division of the UPC sits in London."

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