The telecoms industry and the Unified Patent Court (UPC) - where are we now?

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece patent law specialists James Tumbridge and Kate Woolhouse from Pillsbury Law explain recent changes to the Unified Patent Court and what it means for the telecoms industry.

Since the New Year, the UPC Preparatory Committee (the Committee) has come to an agreement on a number of matters, the key amongst which are the Rules of the UPC on fees and recoverable costs. So after much debate and speculation the telecoms industry, alongside others, can finally begin to assess the costs of the new regime and litigating in the UPC.

Fees and Recoverable Costs

The UPC Committee state that the Rules are subject to ‘legal scrubbing,’ an intriguing expression, which might send the mind in many directions as to what that will do to the final numbers.  However, based on what we know right now the key points of the rules are summarised below.

To opt out of the jurisdiction of the new Court, the European patent owners must submit an Opt-out Application via the UPC Case Management and eFiling system. Although the Committee proposed making a €80 fee payable per patent, this has happily now been dropped.

In terms of costs for using the Court there is one fixed and, if applicable, one value-based fee shall apply per claim (including where multiple patents/parties involved). What does that mean? Well it is meant to be how the Court will be self-financing, so in effect there is a minimum fee for using the court, and then the Court will assess the value of disputes and add a value based fee which could be significant. Here is how it looks:

Fixed fees:

Value based fees:

(Sadly we don’t have much help at this time on where to look for ‘appropriate licence fee’ guidance as to what that means in real money)

Reimbursement & discounts on fees

In summary, the fees payable to commence an action in the UPC will range from €11,000 to €336,000, for infringement claims valued over €50 million.  Notably, no value based fee is payable in a claim for revocation. A small comfort!

For revocation actions, the potential level of fees must be troubling to many.  If there is an objective to promote challenges to weak patents, then the fee structure must be considered too high.  On the other hand, some patent holders may argue that the fee is set too low and will overly encourage revocation claims. It actually seems unlikely that the factors presently influencing people to commence revocation claims will be different in the new regime, but the affordability depending on your stand point, and whether you typically litigate in the UK or Germany or Holland etc. will be rather different.

A key consideration is how to set the value of a claim for infringement. There are guidelines, which suggest that calculation should be simple, but this is Europe so ‘simple’ is a relative term.  The hope is that by referring to an appropriate licence fee, (which the UPC Committee consider is a common methodology for assessment of damages) a trusted approach can be found. There is also a note stating that the value of the claim should have regard to the value of the remedies.  With respect to placing a value on an injunctive remedy, the guidelines suggest that this should be by reference to a royalty rate, although this is likely to yield a lower result than assessment by reference to an account of profit.  An account of profit is also a more realistic representation of a product being pulled from the market.

Other aspects which come into play when assessing the value of a claim is that a higher value results in a higher fee payable, but also a higher cap on recoverable costs (discussed further below).  So whilst we now have a clearer picture of costs, and those with past experience of patent litigation can do their own forecasts and projections we are not at a settled view of total costs.

Recoverable Costs

So a major question is how you show the costs will ‘threaten the existence’ of the company.  Potentially a troublesome hurdle depending on whether such a request and submission and the evidence in support is public.  How comfortable will any business be in telling the world that their business couldn’t cope with such costs?  This may be especially unwelcome if they have to evidence their position, and therefore tell the world about their costs and profitability.

Recoverable costs are totally influenced by the value assessment.  Consequently, both infringement and revocation actions are subject to an assessment of value for the purpose of determining the recoverable costs cap.  For revocation actions, it has been suggested that this is based on the value of the patent, but guidance is lacking as to how this is calculated.  In the event it is not possible to assess the value of the patent, it can be given a value by reference to a licence fee for the remaining lifetime of the patent or by taking the value of the infringement claim and adding up to 50%. All of which means there is still much work today in assessing true costs.

The Rules allow for the caps on recoverable costs to be raised by up to 50% for cases valued up to €1m, 25% for cases valued from €1m-€50m and up to €5m in cases valued at over €50m.  The Court may allow such increases in particularly complex cases, or those which are multilingual.  Although the winning party may welcome such provisions, they also raise uncertainty as to the losing party’s ultimate liability for costs.

Provisions to lower the costs cap for SMEs, non-profits, academic institutions or natural persons protects them from the costs consequences of litigation, or so we are told.  The real question though is what will that mean in practice.  Some are also worried that this may encourage a stalking horse approach, having small entities issuing claims in reliance on this protection from the higher levels of the other side’s costs.

In the same way that one fee is paid per action, irrespective of the number of parties or patents concerned, the costs cap also applies per action.  So it could be envisaged that strategically a party may choose to bring several actions, in the hope of taking advantage of costs recovery in more than one claim, even if it would be sensible for such claims to be heard together.

It’s not all costs though….

Other key matters since the New Year which have been addressed include an important step toward establishing the judiciary.  The judicial salaries for full-time UPC judges have been decided:  The net salary for a judge in the Court of First Instance has been set at €11,000 per month (€132,000 per annum).  Judges in the Court of Appeal will earn €12,000 per month (€144,000 per annum). So now we wait to see if that is enough to attract experienced judges or not?  These figures do not compare well to existing salaries for some judges in some countries, and if those judges have to move or travel to places far from home, will this be enough to attract them?  Only time will tell, but these are not good numbers compared to the salary of an English High Court judge of circa £183,000.

The Committee has also published a draft of the UPC Mediation Rules.  These rules govern mediation proceedings in the Patent Mediation and Arbitration Centre, which will provide facilities and support for the settlement of disputes relating to patents over which the Unified Patent Court has exclusive jurisdiction. The Centre will be based in Ljubljana and Lisbon.  Though as yet we do not know who will be available to mediate or what incentives there will be for using that scheme as opposed to the usual approach of offering to arrange mediation between the parties.

What about the UK will we be ready?

Both Houses of Parliament have now debated and approved the draft statutory instrument; ‘The Patents (European Patent with Unitary Effect and Unified Patent Court) Order 2016’.  This Statutory Instrument (SI) is one of two SIs required for the UK to ratify the UPC Agreement. This SI will come into force as and when the UPC Agreement comes into force. The UPC Agreement and EU legislation on the Unitary patent will be given effect by amendments to the UK Patents Act 1977.  The other SI required will endorse the UPC Protocol on Privileges and Immunities. That Protocol has now been agreed by the Committee and work will begin to prepare a draft.  The UK is on target for ratification by mid-2016, and ready for an early 2017 opening of the Court. So subject to our referendum the Government will be ready for the new court.

Now the question to ask is are you ready?

James Tumbridge is the head of the Intellectual Property and Litigation department in the law firm’s London office. He has extensive experience in commercial litigation, intellectual property and alternative dispute resolution (ADR). His practice has covered a wide variety of matters including; commercial litigation, admiralty, employment, insolvency, banking, pensions, and mortgage claims.

Kate Woolhouse is an associate in the law firm’s Intellectual Property practice and is located in the London office. Kate’s practice focuses on a range of contentious and non-contentious intellectual property matters including trade mark, passing off and patent disputes.