Evaluating Europe’s New IP Court: How the UPC is Doing So Far and What’s to Come

Source: https://www.unified-patent-court.org/en/court/locations

On June 1, 2023, the Unified Patent Court (UPC) opened, providing a new venue for patent litigation across all 17 ratifying European Union member states. The court represents a significant shift in patent litigation in the EU, which is poised to impact the global patent strategy of U.S. and multinational companies.

Through the European Patent Office (EPO), inventors have long been able to obtain patent protection across most of the EU through a single application. Once the EPO grants a European Patent, inventors have the option of obtaining local patent protection in any member state that they select without the need for further examination or review. However, historically, once the EPO granted a patent, there was no single enforcement or invalidation mechanism, leaving it up to the member states to enforce patent rights.

The consequence was that when parties engaged in litigation throughout Europe, they would encounter a fragmented system with competing legal frameworks, evidentiary standards, and timelines for both infringement and invalidity. For example, in Germany, infringement and invalidity are two distinct, bifurcated causes of action, whereas in Italy, both infringement and invalidity are addressed in a single action. Further complicating matters, because a finding of infringement or invalidity in a national court only has effect within a single country’s borders, parties need to litigate the same issues across jurisdictions, incurring additional costs, and risking inconsistent findings.

By providing a single forum with jurisdiction across multiple jurisdictions, the UPC provides an avenue for all patent-related disputes across the ratifying member nations. This enables litigants to save time and effort, increase certainty as to both the value of a patent portfolio, and protect products from serial claims of patent infringement across multiple jurisdictions.

Proceedings at the UPC are structured to be fast and efficient, with the aim that they “shall be conducted in a way which will normally allow the final oral hearing on the issues of infringement and validity at first instance to take place within one year whilst recognizing that complex actions may require more time and procedural steps and simple actions less time and fewer procedural steps.” This puts the UPC ahead of even the fastest forums in the United States, such as the International Trade Commission (ITC) and the Patent Trial & Appeal Board (PTAB). As a consequence, findings at the UPC, even for actions filed after a parallel litigation or inter partes review (IPR) in the United States, have the ability to conclude before and thereby influence those proceedings.

Within four months of opening its doors, the UPC has seen more than 60 cases filed, including almost 40 infringement actions, more than one dozen independent revocation actions to invalidate a patent, and a number of applications for provisional measures, including injunctive relief.

The indications from these initial actions are that the UPC is having its intended impact. Though the UPC has yet to issue any final decisions, early decisions on applications for provisional measures indicate that the court is inclined to rule in favor of plaintiffs with strong cases. Two recent decisions granting a preliminary injunction, myStromer AG v Revolt Zycling AG, and 10X Genomics v NanoString, are instructive.

myStromer AG v Revolt Zycling AG

First, in myStromer, the respondent, Revolt Zycling, preemptively submitted a protective letter with the UPC that it should not grant any provisional measures. Within days of that letter, the applicant, myStromer, sent a warning letter and, the same day, applied to the UPC for an injunction. The UPC granted the injunction on an ex parte basis in a matter of hours, finding that the injunction was justified, in part, because the respondent did not “significantly” deny infringement, “either out of court or in its protective document,” there was no exhaustion of the subject patent, and time was of the essence due to an ongoing trade show.

The UPC justified the grant of an injunction ex parte based on a practical concern—a lack of time:

“The court issued the interim measures without first hearing the respondent. The applicant has credibly demonstrated that a delay would cause her irreparable damage (R. 212.1 VerfO). “Eurobike 2023” is an important leading trade fair that has considerable relevance for the entire industry. It enables the respondent to get in touch with potential buyers and thus build up its own market presence. It is obvious that the exhibition of the challenged embodiment at this trade fair can lead to an almost irreversible loss of sales or market share for the applicant. The products of both parties are substitutable, direct competing products.”

10X Genomics v NanoString

Second, in 10X Genomics, the patentee, Harvard College, together with its licensee, 10X Genomics, sought injunctive relief against Nanostring, alleging direct and indirect infringement of a single unitary patent. In response, Nanostring raised a number of procedural and substantive objections, including invalidity and non-infringement. Nanostring further argued that an injunction would result in disproportionate harm as “the irretrievable damage threatening the Defendants in the event of a ban is particularly serious; for the Defendants there is a risk of being excluded from the European market permanently, or at least for a very long time,” whereas 10X Genomics “could await the outcome of a proceeding on the merits without any financial or other business losses.” Nanostring also took issue with the proposed injunction because, as a non-practicing entity, Harvard College had “no interest at all in the enforcement of a prohibitory injunction.” None of these arguments were successful.

At the outset, the court dismissed Nanostring’s procedural objections, explaining that 10X Genomics, “as the holder of a non-exclusive license,” was entitled to file a request. The UPC compared the harm to 10X Genomics if it didn’t grant an injunction to the harm Nanostring would suffer with an injunction. The UPC determined that “the interest in the right holder in not having its rights infringed outweighs the interest of the potential infringer in securing market shares now through the continuation of the infringement, which it can no longer obtain later through a possible license agreement.” The UPC also determined that monetary damages would not be sufficient, due to the nature of the market, noting that Harvard College was also entitled to pursue an injunction because “possible financial damages in particular can justify an injunction,” and that it may be assumed that there may be “long-term consequences if further infringements by the Defendants are not prevented.”

On the merits, the UPC first found that it was convinced with “sufficient certainty,” which it defined as at least “preponderant likelihood,” that the patent claims were valid. In reaching this conclusion, the UPC noted that this standard was more favorable to the patentee than German case law, which only requires that it be “possible” that the patent claims are invalid, noting that “this case law on national procedural rules is not relevant in the scope of application” of the UPC agreement and rules of procedure.

The UPC next found that it was convinced “with sufficient certainty, namely with at least a high degree of probability, that the Defendants infringe the patent at issue both directly and indirectly.” In light of these findings, the UPC found that an injunction was justified. The UPC did note that the finding was due to the strength of the case against Nanostring:

“[In evaluating a request for provisional measures,] all relevant circumstances shall be taken into account, in particular the possible harm which the parties may suffer as a result of the granting of the order or dismissal of the request for an order. In exercising its discretion, the degree of probability to which the court is convinced of the existence of the individual circumstances to be included in the weighing up is also crucial. The more certain the court is that the right holder is asserting the infringement of a valid patent, that there is a need to issue an injunction due to factual and temporal circumstances and that this is not opposed by possible damages of the opponent or other justified objections, the more justified the issuance of a prohibitory injunction is. Conversely, if uncertainties exist with regard to certain circumstances relevant for the weighing up of interests which undermine the court’s conviction, the court may consider as a more lenient measure the alleged infringement to continue subject to the provision of security or even the dismissal of the request.”

Notably, under the UPC rules of procedure, applications for provisional measures may be filed before commencing any infringement action at the UPC. As a consequence, a patentee may “freeze” an accused infringer’s business while it marshals the evidence necessary to bring a case. This can have significant consequences on the accused infringer. For example, after the UPC granted a preliminary injunction, Nanostring saw its stock price drop 13%.

A Useful Guide So Far

These two opinions provide an important initial guide for parties seeking preliminary relief from the UPC. In order to prevail, an applicant must demonstrate a likelihood of success on the merits by a preponderance of the evidence, and irreparable harm. These early decisions also make clear that irreparable harm may be found where a patentee may lose out on market opportunities or suffer economic harm that is difficult to quantify. Notably, if all else is equal, the UPC appears prepared to tilt the scales in favor of the patentee. Thus, in cases where a patentee has a competing product on the market, or licenses a competing product, the UPC may similarly issue injunctions.

The ability to obtain a preliminary injunction, sometimes in a matter of hours and ex parte, makes the UPC a potentially compelling option for patentees. More generally, these early decisions suggest that the UPC will be an attractive forum for patent litigation that may even outpace the local courts within the European Union.

The UPC Should Change Your Litigation Strategy

As the UPC evolves, its decisions are likely to have a broader impact on the global stage. The speed of its proceedings are slated to be much faster than U.S. proceedings (two or three months to respond to a complaint; one year to hearing). Although U.S. proceedings may posit higher potential damages, they require extensive discovery that can lead to higher costs, with more limited opportunities for injunctive relief. These considerations—a faster proceeding with a higher opportunity for injunctive relief, together with a general plaintiff-friendly inclination,  sets the stage for the UPC to be a powerful venue for driving settlement and otherwise impacting a parallel pending litigation in the United States and elsewhere. As part of a global litigation strategy, companies should thus consider using this venue, pursuing claims in the UPC in parallel with United States litigation, as a way to optimize its opportunities for success. A decision in the UPC also has the benefit of providing additional evidence for positions taken in the US litigation, as well as putting additional market pressure on a defendant.

For the same reasons, potential defendants in U.S. or global patent litigation should take care to examine European analogs to the patents at issue and be prepared to mount a strong defense. Being caught off guard and targeted as a defendant can be very difficult in the UPC. Advanced preparation should be considered, beginning with freedom to operate studies that thus focus on competitive EP patents. Early protective letters or revocation actions in the UPC could also be considered, which  can potentially preempt the grant of a preliminary injunction and otherwise enable a company to respond promptly if attacked.