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One of the most frequently-discussed concerns regarding the unified patent court agreement is the possibility of bifurcation*. This has, in turn, lead to concerns in some quarters that local divisions of the unified patent court could set themselves up to be patent proprietor friendly but send validity counterclaims back to the central division. In such scenarios, the argument goes, a patent owner could secure an injunction in the local division based on the issue of infringement that would have effect across the whole of the unitary patent area before validity has even been heard in the central division.
Regardless of the above “doomsday” scenario, however, it is noted that according to the UPC agreement the defendant will be able to raise validity as a counterclaim within an infringement action. It will then be up to the local division in question as to whether they hear both infringement and validity (I&V) or whether they kick the validity part of the action back to the central division (and thereby create a bifurcated case). [This IPcopywriter has assumed (probably naively) that local divisions will probably follow the practice of the country within which they are set up.]
However, on a review of the final text of the UPC agreement, we have come across a particular scenario, written explicitly into the agreement, in which the defendant is apparently not even able to raise validity as a counterclaim in an infringement action. We are referring to Article 47(5) UPC agreement and the scenario where an exclusive licensee brings an infringement action.
Article 47(5) states: “The validity of a patent cannot be contested in an action for infringement brought by the holder of a licence where the patent proprietor does not take part in the proceedings. The party in an action for infringement wanting to contest the validity of a patent shall have to bring actions against the patent proprietor.”
So, on the face of it, this appears to be saying that if you, as a defendant, are unfortunate enough to be on the receiving end of an infringement claim where the action is brought by the exclusive licensee as opposed to the patent proprietor (and the proprietor is not taking part in the proceedings) then you cannot even raise validity as a defence, regardless of whether the local division supports combined actions (I&V) or not!
This seems incredible to a UK-based attorney. The equivalent part of the UK Patents Act 1977 is section 67(3) which requires the proprietor to be made a party to the proceedings. The UPC agreement however makes no such statement.
A UK patent attorney calmly expresses his views on a bifurcated patent system
If we consider this point further it is not difficult to conceive of cases where an IP creation company places IP into a separate holding company with an exclusive licence back to the IP creation company. If the IP creation company brings infringement proceedings against another entity then that entity is apparently precluded from raising validity as a defence in those proceedings. Instead they must raise a separate validity action, with the central division, in order to try and revoke the patent.
If the local division hearing the infringement action and the central division hearing the validity action run at different speeds then potentially the defendant is going to be looking down the barrel of an injunction for a significant period of time before they can even get their “counterclaim” heard.
Plenty of patent applicants already run such “IP holding-creation” set-ups and if the above is correct then IPcopy can see many more companies going down this route. One might even cynically suggest that such a set up would be more easily exploited by large entities than by SMEs.
So, we’ve heard what the UPC agreement says. What about the Rules of procedure of the Unified Patent Court? Well, as of the time of writing, the Rules of procedure have not been agreed. IPcopy understands that a 12th draft is currently being discussed. A copy of the 9th draft can be found here.
IPcopy notes that these rules of procedure seem to be at odds with the text within Article 47(5) of the UPC Agreement (people who have seen the 12th draft of the rules have confirmed to IPcopy that they are broadly the same as the 9th draft as far as the issue of revocation counterclaims is concerned).
The relevant parts of Rules 23 and 25 are reproduced at the bottom of the post below. Based on these rules, it would seem that a counterclaim for revocation is allowed, even when the infringement action is brought by an exclusive licensee. Rule 25 in particular appears to cover a situation where the patent proprietor is not party to the proceedings, but a counter-claim for revocation has been made – a situation that is at odds with Article 47(5).
So, where does this leave us? Apparently, with a unified patent court agreement that doesn’t permit a revocation counterclaim to be made where an exclusive licensee is bringing the action (and where the proprietor is not part of the proceedings). And also, apparently, with a draft set of rules of procedure for the unified patent court that seem to be at odds with the unified patent court agreement.
IPcopy will be looking forward to the public consultation on the rules of procedure of the unified patent court to see how this issue plays out. The public consultation is expected to commence next month. In the meantime, are you part of the group developing the rules of procedure? Has this issue been raised? How is it being dealt with?
Mark Richardson 22 January 2013
Rule 23 – Counterclaim for revocation
3. Where the plaintiff is not the proprietor of the patent (or patents) concerned the Registry shall as soon as practicable serve a copy of the Counterclaim for revocation on the proprietor(s) in accordance with Rule 11(di) and shall supply a copy of each document referred to in Rule 23.2.
Rule 25 – Examination as to formal requirements of the Statement of defence
1. The Registry shall, as soon as practicable after the lodging of the Statement of defence:
.. (c) if the patentee is not a party to the infringement action serve the Counterclaim for revocation on the patentee in accordance with Rule 11(d)(i).
*Bifurcation refers to a patent system in which the validity of a patent and the infringement of a patent need to be challenged in separate actions in front of the courts. The UK system doesn’t do bifurcation whereas the German system does.
IPcopy 
It seems to me that no one has considered the effects of this situation arising on the Claimants and Defendants. The law is there to aid the smooth running of society, ensure fairness and not for the benefit of litigators. Bifurcation will add cost and complexing to an already costly and complex system. We need simpler procedures – not ones which will undermine the enforcement of the patenting system.
Thanks for your comment virtuosolegal
There do seem to be a number of “teething” issues with the Agreement and we at IPcopy are looking forward (if that’s the correct turn of phrase) to the public consultation on the Rules of Procedure.
There is a good article on the possible impact on SMEs and the potential costs of the unified patent court system in the link below. Well worth a read.
For a detailed breakdown of how the whole unitary patent package will work please also see our Q&A post which can be found on our unitary patent package page.
http://www.eplawpatentblog.com/eplaw/2012/12/eu-exclusivity-transitional-arrangements-and-opt-out-risk-of-financial-disaster-for-small-companies-.html
It is going to be interesting seeing how the rules of procedure deal with the joinder of parties, which could help with the problems caused by this clause.
But even if joinder is not possible, I wonder – is it possible for a defendant to engineer a situation which avoids bifurcation? This is rather convoluted, so apologies:
Article 33(2) says that if ‘the infringement has occurred in the territories of three or more regional divisions’ the defendant can ask for the case to be referred to the central division.
This whole agreement is rather imprecise, and I do not know what the Article means by ‘the infringement’. It can’t mean that there has to have been a finding of infringement.
Article 33 (2) could mean – ‘the product or process which is alleged to infringed has been used/made/disposed of/offered/imported in the territories of three or more regional divisions’. And if the potentially infringing acts can occur after the claim has been issued (and one would have thought that Claimants should be able to include extra infringements as proceedings develop – and so Defendants should be able to as well), one could engineer a couple of acts of potential infringement in other countries post commencement of proceedings. It seems wholly counter-intuitive to advise a defendant to increase its exposure – but it may be possible to choose acts which do not materially increase liability in damages.
If 33(2) just means – ‘the alleged infringement has occurred in the territories of three or more regional divisions’ – then the licensee could still achieve bifurcation by only alleging infringement in two member states – though he may then be facing a risk of Henderson v Henderson estoppel.
Assuming the defendant can get the claim into the central division, this should also be in the court where the revocation action has been commenced; although I don’t understand how cases are allocated when a patent falls into more than one classification and those classifications cross over between the sections’ demesnes.
But again assuming that listing acts in a consistent matter, one would hope that rather than hearing two cases in the same court about the same patent, a sensible court would at this point have the actions combined.
Obviously, it would be rather more convenient for defendants if they were just able to file a simple counter-claim.
This is all an utter nightmare for the poor patentee that started in one country only to find he now has to fight the matter in another country.
There could be a lot of satellite litigation when these rules come in!
Wow, thanks Giles! Not sure what it says for the Agreement and Rules if we are considering such a situation!
I wonder if it would been be simpler if we had agreed to allow “classic” EP patents (as opposed to the unitary patent) to continue to use the national court route or to choose the unitary court (rather than forcing the issue at the end of the transitional provisions)?
I also wonder whether we’ll start seeing any calls for “software patches” to the agreement to fix these “bugs”!
[…] and that if an infringement action is brought by an exclusive licensee, bifurcation is all but forced on the […]
This could end up even worse than it looks. Certainly the English courts have decided that, if you lose on infringement and exhaust the appeal process for the case, you still have to pay the damages even if the patent is subsequently revoked. See
http://www.bailii.org/ew/cases/EWCA/Civ/2004/213.html
and
http://www.bailii.org/ew/cases/EWCA/Civ/2007/364.html
Though they may relent if the defendant hasn’t had the chance to challenge validity…
[…] Even worse, with the ‘non-exclusive-competence’ interpretation, it would get unbearably complicated if you consider fact that an alleged infringer can’t counter-claim for revocation in an action brought by an exclusive licensee, but must instead bring a separate revocation action against the patentee (See Article 47(5) and our post here). […]