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The EU Patent Package

Politics vs.Quality and the New Practice of Secret Legislationin Brussels

Dr. Jochen Pagenberg[1]

The status quo[2]

  1. The European “patentpackage" consists of two draft regulations, one for the language question and one for the unitary patent ("EU patent"), and a draft agreement for a unified patent court.[3]In response to considerable resistance from user circles on the grounds of numerous deficiencies in the draft Agreement and the Patent Regulation, and because of a lack of agreement concerning the seat of the central division, the planned date of signature at the end of December was cancelled by the Polish Presidency. Since then, the Danish Presidency could not recommence the work on the said texts, since it was necessary to await the outcome of the French presidential elections. Presently the Council and the Presidency are apparently considering final discussions on May 30, a proposed European Parliament reading on 13 June 2012, vote on 14 June 2011 and a date for signature by the end of June. Since it is hardly likely that the many objectionsand open questions will have been resolved by then, the European patent community must prepare for the most serious deterioration if not destruction of the patent system imaginable.
  1. It is therefore hoped that the adoption of the text will once again be postponed and instead the increasingly pressing reservations of industry and user associations everywhere will be taken seriously. It is high time to address the urgent wishes of those for whom this "work of the century" is intended. In the "hot phase" of the discussions in November and December, there was much to be found in various blogs on how different texts were being sent backwards and forwards between the Council, the EU Parliament and the Commission.[4]However, resolutions and legal opinions from industry, university circles, judges and lawyers were dismissed, even by members of the EU Parliament,as spurious since these specialist circles – although partly long-time expert advisors of the EU Commission and all of them future users of the system - were allegedly lobbyists or “interest parties” who need not be paid any attention.
  1. This blithe refusal to address the demands of user circles is now joined by a further component that is constitutionally and under generally accepted democratic rules highly dubious and whose relevance has only recently become apparent to the author.[5]This concerns an agreement between the EU Parliament, the Commission and the EU Council according to which the public is to be shielded fromrecognized legal and factual reservations and known legal deficiencies concerning the proposed legislation, from which one can deduce that the overall positive announcements by the EU authorities to the public apparently do not even reproduce one half of the truth.
  1. Despite the mentioned stand-still in the drafting process, a group of experts is working on drawing up procedural rules, the absence of which had been criticised for some time and that have no longer been taken up by the EU Commission. Accordingly, the group of experts is working in a law-free space, and as it proceeds it is discovering numerous inconsistencies in the draft Agreement that stand in the way of reasonable procedural rules.[6]
  1. The public announcements by the Commission and the Council have promised that with the Agreement to be signed everything introduced by the new patent system will allegedly be better than it was in comparison to the national patent systems:

-Lower costs for patent applications and judicial proceedings

-Improved efficiency of the courts thanks to simple and fair procedural rules

-Easy access to the courts through local presence and local language

-Predictability of judicial practice and legal certainty for the parties

-Judges with maximum quality, competence and proven experience in patent disputes[7]

The following not even complete list of disputed itemsshows that none of these promises has any prospect of being fulfilled, for each point either impractical and expensive provisions are proposed or no provisions whatsoever.

  1. Costs of the Unitary Patent (“EU Patent”)

After grant of an EP patent, the proposed application procedure provides the possibility of receiving, instead of designating individual countries, a unitary patent ("EU patent") for 25 countries. The costs have as yet not been determined, neither the designation fees nor the annual fees, so how can one promise lower cost? The only document published[8] with a proposal for fees contains a heading renewal fees, howeverwith the explanatorytext deleted.For the overwhelming majority of applicants who are only interested in protection for three to six countries, there is anyway no doubt that both the application costs and the annual fees will increase if they choose an EU patent. A proposal which apparently was made during the Polish presidency allegedly promised as to annual fees

  • to allow to all Member States that they keep their current renewal fee income while at the same time ensuring that those Member States which currently have a low renewal fee income will significantly increase their renewal fee income

If the income of member states will be increased, then the users have to pay more, not less, so that the promised considerable reduction of costs in order to be able to survive in competition with the USA and other countriescannot be true, and the Council must know why it does not disclose further details. If there are advantages at all then they will benefit only the small percentage of applicants who need protection in 25 countries, although the favourable translation rules will anyway only enter into effect following a long transition period. For all others, the costs will obviously increaseif the promised higher income for member states will come true. Apparently the Council had intended in December to sign the secret proposals without further consultation with the users and now intends to do this in June.This wouldbe a bad surprise for the users.

In this context account must also be taken of the fact

  • that with the unitary patent it is no longer possible to drop individual countriesbefore the end of the life of the patent in order to save annual fees, and
  • that in the event of the enforcement of the right, a counterclaim can involve the risk of revocation with effect for 25 countries by one stroke, even if an infringement action has only been filed for one country.

The latter is not a fundamental deficiency, since one of the consequences of the more global enforcement of rights is that patent holders must as a rule also reckon with the risk of a greater loss. But this is certainly one of the reasons that a large majority of the present applicants for bundle patents ("EP patents") who hitherto have been satisfied with designating only a few countries, will not perceive the EU patent as a welcome alternative or substitute for the EP patent unless it involves very considerable additional advantages - which the costs are very certainly not.

But above all,for the EU project, it is still not possible to even approximately assess in addition to the cost the quality of the judges and the efficiency of the systemas a whole, so on what should a choice be based? Promising improvements at this point are clearly premature.

II.Jurisdiction of the courts

The following remarks are based on the present proposal that EU patents and EP “bundle” patents are to be judged by the new court, although this will lead to a situation like in the US that SMEs will no longer be able to afford litigation for cost reasons. This point will be discussed below.

The rules concerning the choice of jurisdiction have become unnecessarily complicated, and each new discussion paper shiftspowers from the local divisions to the central division. This takes us further and further away from the principle of a jurisdiction based on decentralised local divisions and judges that can easily be reached by the users and whose hearings are held in their own procedural language.[9]

Originally, the rule was that the action could be brought at the place where the infringement occurred or at the defendant's domicile in conformity with Regulation 44/2001. The new proposals, in the case of a defendant domiciled outside the EU, lay down that the action can also be brought at the central division, where it is not the local language of the proceedings that applies but rather the language of the patent. For patent owners this means that they will have to travel presumably very far and cannot use their local divisions as promised.

There is allegedly proposed another rule that if the defendant is domiciled in the EU and an infringement takes place in the territory of more than three local courts, the defendant can demand that the entire proceedingsbe transferredto thecentral division although the patentee, for limiting his financial risk, might only have started proceedings in his home market. In this way, the local divisions lose jurisdiction, the language might changeand the patentee is all of a sudden exposed to a much greater financial risk than originally intended.[10] For a small or medium size company this is unacceptable.

Even if the proceedings remain before the division seized, "as a compromise" the rule is proposed that upon application by the defendant the language selected by the plaintiff will be changed to the language of the patent, namely "for reasons of simplicity and fairness". The original provision stated that the language could be changed only with the consent of both parties.

It is at this stage unknown whether these proposals have found a majority, but already that they are being discussed behind closed doors and contained in presidency papers[11]show that the objectives of the agreement are being changed dramatically, and would denySMEs access to their local jurisdiction; this was never intended to happen. A provision according to which, where a foreign infringer is making a huge incursion on the market, a medium-sized enterprise can be suddenly obliged after filing the action to travel to a foreign central division and to translate the entire materials of the case into a new procedural language because this is supposed to be easier for the defendant, is the opposite of efficient enforcement and another one of the broken promises being announced publicly.[12]Anyone who thinks that, after months of preparing a patent infringement action, having determined the court and language for filing the action,one could change language and court without radically impeding the enforcement of a patent has little or no knowledge of the practice of patent litigation.

It is also not convincing that a defendant is treated unfairly if a case is tried in a foreign language. Already according to current practice- in national courts as well as in the EPO - defendant's lawyer can provide him upon request just like it is customary for a foreign plaintiff with translations of pleadings and an interpreter.

It is under all circumstances more significant that the judges and the attorneys discuss the case in the language of the local court than whether the defendant can follow the oral hearing in his own language directly or by translation.Why should precisely the domestic plaintiff be forced to change his language in his own country for the defence of his patent, having been promised proximity to the courts, if the defendant was obviously in a position to organise the marketing of his products in the plaintiff's country? Nobody would make such a proposal for the situation of a traffic accident anywhere in Europe in which a foreigner is involved: the language of proceeding would of course be the local language of the court where the accident has happened independent whether the foreigner is the plaintiff or the defendant.

As will be shown below in a different context, it may well be that more concentration of casesin the central division could be envisaged for larger international cases in which the parties do not mind travelling abroad or changing the language, but it is inappropriate and certainly entirely unfair for small and medium enterprises and actions dealing only with one country.

III.Litigation costs

1.According to one of the last Polish proposals, again contained in a text whose validity is unknown, court costs should amount to between EUR 6,000 and 1 million Euros, "on the basis of a complementary value-based feesystem applicable above a pre-defined ceiling". There is no mention of what is to be used to determine this (turnover? profits? damages? licence fee?). The expertcommittee currently working on the procedural rules is not addressing the question of costs – no one is. A judicial agreement without a regulation of costs, however, cannot be qualified as ready for signature if lower costs and predictability are promised but the envisaged rules on cost are kept secret from the public[13].

In comparison to German practice – which has often been used as a benchmark in official documents -, considerable increases are to be expected if the court costs are to be self-financing. The German bifurcation principle has become subject to considerable criticism, although the draft Agreement contains a fair option between the different possibilities of case management for the judges. But each of the different possibilities will have an effect on costs. In Germany, in out of 100 infringement cases, only between 25 and 30 revocation actions are filed, while in countries with a combined system this figure is 95%. If the bifurcation system is abandoned or if local jurisdiction is shifted increasingly towards a central division applying the combination system, this will have an effect on the efficiency of the courts, the duration of the proceedings and hence the costs.

2. With more and more localdivisions choosing the combination system in which an infringement action and a nullity action are heard together, an entire day will be needed for an oral hearing as compared with the current German practice according to which four “infringement-only”cases can be heard in a day.If it turns out that parties prefer divisions without bifurcation they must know that this increase in costs cannot be avoided and thus must be taken into account by parties which prefer more centralisation - in any event in cases concerning EU patents. But then one must make it clear that EU patents are not fit for smaller cases and/or smaller budgets, instead of telling the public the opposite and hiding the real figures.

3. For technically difficult international cases that would otherwise be litigated in parallel in different countries, the combination system will provide a centralisation of legal and factual issues which would certainly be welcome for parties which apply for EU patents. This is even more apparent, if a case requires voluminous expert opinions that otherwise would have to be obtained in different languages in each country. These cases will be made much easier and much cheaper to conduct, and for these cases the central division may offer advantages once the quality of the judges there can be ascertained.

For the majority of averageinfringement cases however, the parties will have to face substantial additional costs and delays at the expense of a rapid enforcement of rights,[14]since combined proceedings are practically an invitation to the defendant to file a counterclaim. A multiplication of litigation cost for average cases is hardly acceptable for SMEs who will remain the main users of EP patents in the form of bundle patents, and they will need the local courts for enforcing them.

This shows that a lack of differentiation between plaintiffs is in conflict with the business interests of a large number of patent applicants and owners, in particular SMEs. Compared with German practice, the proposed rules can lead to a three-fold increase of revocation actions and a fourfold increase of the time needed for infringement cases. This may be acceptable for EU patents that require protection in 25 and more countries. However, to expect SMEs to bear such cost increases for EP patents would be a serious mistake for the new judicial system. The promised substantial cost savings through the avoidance of parallel litigation[15]will not be achieved for the large majority of parties, namely again for the SMEs. On average, only 5-8% of litigation in countries like Germany, France and Italy involve parallel proceedings in other EU countries, and not 20% as alleged in a study[16]. In the large majority of cases it is precisely not SMEs that conduct these parallel proceedings and that could profit here.

As a result of such changes in proceedings initial estimates come to the conclusion thatlitigation costs will increase by at least a factor of threeif one takes again todays’ German cost as benchmark. This might not be alarming for certain jurisdictions, but for SMEs this goes beyond the threshold where the risk when going to court is no longer affordable. In this context also the mentioned arbitrary changes of language and court, etc. must be recalled. This explains that there is no chance for a reduction of costs[17]and the examples show that the intended replacement of the national court systems by a more centralized and much more expensive judicial system will in practice lead to a denial of justice for SMEs and eventually even to a collapse of the enforcement system in view of the number of cases if EP patents must also be brought to the new court and no choice for national courts is provided.