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Unified Patent Court: An Opportunity for Europe to Get It Right

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Inventors have long been making the case that patents spur innovation by encouraging inventors to publicly disclose their creations and share their knowledge. So why is industry so cautious about welcoming the proposed unified patent system in the EU, which would simplify the procedures and promote efficiency for Europe-wide patent applications? Good for small and large businesses, right?

Let’s take a few steps back. Currently there is no such thing as a single patent enforceable throughout Europe as patents must be maintained and enforced separately in each EU member state. After 20 years of negotiations, many European Member States have signed an agreement to set up an EU-wide “unified” patent system.  That system will include a court, the Unified Patent Court (UPC), to enforce future unified patents. Under the new system, a unitary patent will be immediately enforceable in the new UPC, and decisions on validity and infringement will be binding throughout the participating 25 Member States. The aim is that this will result in a more efficient, predictable and streamlined patent system, all of which we strongly endorse.

But some have criticized the new system. Industry, legal practitioners and even some judges have expressed concerns that it could potentially increase litigation costs and legal uncertainty. Another concern is that the UPC could create inappropriate incentives for so-called ‘non-practicing entities’ (often referred to as ‘NPEs’ or ‘patent trolls’ in the United States) to exploit the new court system for unfair gain. ‘Patent trolls’ are entities that acquire patents and then sue companies, alleging to have invented some technology embodied in the company’s products.  Patent trolls’ primary business is litigation and licensing; they do not manufacture goods or supply services. As patent litigations take years to resolve and are very expensive, trolls may offer to settle for an amount just less than what litigation would cost. Imagine what this can do to businesses, especially small businesses.

So far trolls have not gained much traction in Europe. But if not carefully balanced, that could change under the new unified patent system. Specifically, two aspects of the draft rules for the UPC could invite abusive trolling activity in Europe. First, a provision that permits a near EU-wide injunction to be imposed before the courts have ruled on a pending challenge to the validity of the patent could result in opportunistic parties misusing the system to force unreasonable settlements on potentially invalid patents. This is not a theoretical risk, as data in several countries show a high percentage of patents are invalidated when parties actually try the validity issue. Second, a provision and commentary that discourages judicial discretion to consider proportionality concepts for injunctions—requiring, instead, near-automatic injunctions even where a patent contributes only incrementally to a much larger product—could further entice trolling activity.

We have some experience with abusive litigation behaviors by trolls and even increasingly by non-trolls. In the US such abusive litigation behaviors impose heavy costs on manufacturers through the continual and troublesome litigation of dubious patents, thereby jeopardizing the propagation of innovative products to society. In 2013, almost 6,500 patent lawsuits were filed in the US.  Suits filed by patent assertion entities (PAEs), one type of patent troll, accounted for 67 percent of all US patent litigation, up from 28 percent five years ago, according to a 2014 patent litigation study by PricewaterhouseCoopers. (http://www.cpapracticeadvisor.com/news/12043654/study-says-patent-trolls-restrict-innovation-and-cost-americans-billions). A recent study by MIT found that such frequent and abusive litigation behaviors in the US has cost at least $21 billion in lost venture capital funding for entrepreneurial activity. (http://libraries.mit.edu/news/research-news-patent/15735/)

To avoid such negative repercussions within the European unified patent system, we recommend that the rules of procedure for the UPC:  (1) prevent injunctions from being granted before pending questions about a patent validity have been resolved, and (2) direct judges to consider the proportional harm and fairness to the parties when deciding whether to grant injunctions in individual cases.

Intel is part of an industry coalition of multinationals and small and medium-sized enterprises (SMEs) that share these concerns. A new coalition website provides videos from several SME members and infographics addressing these topics.  That website is located at: www.industrycoalition.eu.

Europe now has a clear and exciting opportunity with our new unified patent system to adopt rules that foster innovation and competitiveness and that limit the risk of encouraging abusive litigation behaviors in Europe.