Early UPC pharma patent strategies – what is the industry view?

The UPC is set to begin operating from 1 June 2023 in what will mark a major change to Europe’s patent litigation landscape. It is clear from discussion at the Life Sciences Patent Network (LSPN) North America spring 2023 event earlier this month that a variety of pharmaceutical patent litigation strategies are likely to materialise in the early months of the court system.

While some pharmaceutical patent holders are not keen to engage with the UPC system at all, others see value in subjecting at least some of their patents to the court’s jurisdiction – to help shape early case law of the court, and to take advantage of the potential to obtain a finding of infringement before one local, regional or central court of the UPC that will have effect across all the participating UPC states.

Our discussions with industry at the Boston event, however, also highlighted how nuanced some pharmaceutical patent litigation strategies are likely to be towards the UPC in its nascent days. Factors such as the limited time defendants will have to respond to claims raised before the UPC, the capacity and independence of judges, and the likelihood of cases being handled by local or regional divisions of the UPC, are all having an influence on the strategies being developed.

How opt-out strategies can support UPC enforcement

The UPC will have exclusive jurisdiction for disputes relating to infringement and validity of new unitary patents as well as any classic European patents, for participating UPC member states, which have not been "opted out" of the new system. 

One approach patentees could adopt is to opt out their key European patents from the UPC’s jurisdiction initially but subsequently withdraw those opt outs when they are ready to enforce their European patents in the new court. Industry figures told us at the LSPN event that they were considering this approach to avoid the risk that third parties challenge the validity of their patents at the UPC before they have an opportunity to devise either an enforcement strategy against alleged infringers or a defensive strategy against revocation actions.

This is a relevant consideration since parties that are defendants before the UPC face tight timescales to respond to claims raised against them. In the case of a revocation action, defendants have just two months to respond – including to compile evidence from expert witnesses.

By opting patents out from the jurisdiction of the UPC initially, patent holders would be able to work in the background, during the early days of the court’s operation, to build a case against suspected infringers. When they are ready to litigate, they could withdraw the relevant opt outs and raise proceedings before the court. In that scenario, the suspected infringers would be the defendants and they would have just three months to challenge the claims or raise a counterclaim for invalidity.

While this appears to be an attractive strategy, there are some risks to consider.

Potential market entrants could start national proceedings in UPC participating countries seeking revocation or declarations of non-infringement against the European patent while it is opted out to clear the path of those patents to launch their competing product. This would potentially lock the patent out of the UPC system so that proceedings must be taken in each national court, as happens under the current system. If a patentee were to withdraw their opt out and start infringement proceedings, the UPC would have to decide whether it has jurisdiction to hear the case. It may put proceedings on hold pending resolution of the national action or it could continue with proceedings but carve out the country where the national action is on foot from any decision. How this will play out remains to be seen.

Further, proceedings in the UK could give rise to a similar or more serious issue, despite the UK not being part of the UPC following Brexit. Under Article 33 of the Brussels Regulation (recast), the UPC, when asked to consider the same cause of action between the same parties as the UK court, may put its proceedings on hold. Where a UK judgment has been given which is capable of recognition in the participating states of the UPC, the UPC should dismiss the proceedings before them. The UK court has previously provided a cross-border declaration of non-infringement concerning European patents – a so called “English torpedo” – which may give rise to such a situation.

It will therefore be important for patent holders adopting the opt out approach to protect their portfolio to be aware that it may preclude them from using the UPC to enforce their patents at a later date.

Shaping case law around injunctions

Many pharmaceutical patent holders are looking to opt out their portfolio, or at least patents related to their key assets. While some may later opt back in to enforce, this abdication from the early days of the system may have some potential downsides.

One risk of delay in participation discussed amongst industry at the conference is that the case law of the UPC will be shaped in relation to patents in other sectors – potentially to the disadvantage of pharmaceutical patent holders. A particular risk in this respect is in relation to case law around the availability of injunctions, including preliminary injunctions, in infringement actions.

Injunctive relief can be an important remedy for patent holders in cases where pharmaceutical patents are being infringed, prohibiting infringers from manufacturing, supplying or distributing rival products that infringe patent rights.

Preliminary injunctions provide the added protection for patent holders in that they keep the potential infringer off the market until the full proceedings on infringement, and validity if in issue, are determined. They can be sought and ordered very quickly in many European jurisdictions – within a matter of days or weeks – and in the UPC there is provision for preliminary injunction hearings to take place as soon as possible. Considering this, and the short timeframe of 12 months for main proceedings, it is expected that UPC preliminary injunction proceedings will take place in short order. Injunctions, both final and preliminary, are therefore a vital remedy pharmaceutical patent holders often seek to preserve their market monopoly and the value of their significant investment in research and development.

There is a risk that the courts of the UPC consider the justification for granting injunctive relief solely in the context of patents relevant to communication technologies or related other technologies. Holders of such patents are expected to be among the first users of the new court. The threshold test for granting an injunction may be higher in technology cases than in most pharmaceutical cases and set an unhelpful precedent for pharmaceutical patent holder.

In technology cases where standard essential patents (SEPs) are in issue, a technology implementor may seek a FRAND (fair, reasonable and non-discriminatory) licence by way of defence to allegations of infringement of that SEP. The UPC Agreement does not explicitly address whether the court has jurisdiction to decide on FRAND issues, but the expectation is that it will do so. The SEP holder may ask the court to grant an injunction unless a FRAND licence is accepted, as is permissible in the UK, though whether this is allowable under the UPC Agreement is also unclear. Seeking a licence in a technology case is common, FRAND licences being just one example.

The starting point for awarding an injunction is therefore different. Whereas pharmaceutical patent holders will seek an injunction as their primary remedy, in many technology cases it is a fallback position – only granted in the scenario that the FRAND licence terms, determined by the court, are not entered into by the technology implementor.

In addition, in technology cases, it is common for the patent in issue to apply to just a component part of an end user product. A licence could, in those circumstances, consider the relevant licence fee for the component part and an injunction would only be granted over the whole product where agreement is not reached. In that sense, the position is different to many pharmaceutical patents where it is common for patents to cover the entirety of a product or the way in which they are formulated into a medicine or used. The same principles of proportionality when considering any injunction therefore do not apply.

The UPC may determine that taking an entire product off the market on the basis of infringement of one small part to be disproportionate. The risk of this for pharmaceutical patent holders is that the case law it develops in reaching that conclusion makes obtaining injunctive relief more generally difficult.

The potential for forum shopping

Despite the risks, there was an overwhelming impression among delegates we spoke to at the LSPN event that the UPC is likely to be ‘pro-patentee’ in the early days of its operation, to encourage patents to be litigated before the court.

However, there is a view that some divergence is likely to emerge in how the different divisions of the UPC rule. This risk is due to how the UPC system has been set up: revocation actions before the UPC will have to be raised before one of the central divisions of the court – in Paris or Munich, depending on the type of patent at issue – while infringement actions can be raised before a local division of the UPC in either the country where an infringement is taking place or where the defendant is domiciled.

Since most potential infringers will be multinational pharmaceutical companies operating different entities across multiple UPC participating states, and who may launch or threaten to launch products in multiple UPC participating states, patent holders will have a lot of choice as to where to bring an infringement action. Businesses are therefore likely to consider which of the available forums is likely to be most favourable.

There will be no case law at the UPC on day one of its operation. However, the UPC Agreement sets out that the court shall base its decisions on EU law, the UPC Agreement itself, the European Patent Convention, other applicable international agreements, and finally national law. Therefore, it is likely that the judges in local divisions will refer to, and rely on, the local case law they are used to in their jurisdiction to determine disputes before them before UPC case law itself has developed. In countries where there have been more than 50 patent cases annually on average over the past three years, the local divisional courts will comprise two local judges and one judge from another jurisdiction, which arguably increases the likelihood that local case law in that jurisdiction will shape decision-making – rulings will be made on a majority basis.

The slight caveat to the potential for forum shopping is that local courts of the UPC will have the option to refer infringement actions to the central division of the UPC in cases where a counterclaim for revocation is lodged, which is likely in most pharmaceutical cases. Alternatively, they could decide to consider the infringement action and refer the revocation action to the central division – i.e. bifurcate the proceedings, as currently occurs in Germany, although this is considered unlikely at the UPC from our recent discussions with UPC judges – or to consider both the matters of infringement and validity itself.

We think the local courts, particularly in some of the bigger countries participating in the UPC system, are likely to be keen to demonstrate that they have the nous to determine the case and will want to be involved in shaping the UPC’s case law. Therefore, they may take the latter option to hear the case themselves.

Overall, this procedural configuration means businesses can expect slightly different decisions to come out of the various participating states within the UPC in its early days. Local divisions are not bound by case law from other local divisions, therefore such variation in the law could develop.

Other factors that could influence the selection of UPC forum, which industry figures told us they are considering, are judges’ capacity and the potential for them to have conflicts of interest.

The judges appointed to the UPC have different backgrounds. For example, some have been members of the judiciary in the courts in their own country; some are patent attorneys with experience in industry.

It had been anticipated that UPC judges would have to cut any ties with other employers to demonstrate their independence, but that is not the position. For instance, court guidance enables patent attorneys to continue in a role within industry while also carrying out their judicial role at the UPC. Companies will be mindful of this when selecting a jurisdiction to bring infringement proceedings in.

UPC just a part of wider global market

Delegates at the LSPN event were predominantly representatives of pharmaceutical companies whose main market is the US. However, Europe provides a large further market they are now looking to, particularly if patent enforcement via the UPC can streamline holding their market position across numerous countries. We therefore found a real interest in and eagerness to understand the UPC and how it is going to operate, as well as a degree of wariness over what is to come from the new system, particularly the short timeframe for responses to revocation actions.

What is clear is that pharmaceutical patent litigation strategies being developed with the UPC in mind are diverse, nuanced and bespoke to the needs of the broader commercial objectives of each business. There is no fixed approach, and this reflects the need for businesses to understand how the UPC could impact them and devise appropriate strategies to take advantage of the opportunities, and address the risks, it presents.

Pinsent Masons has developed an action plan, checklist and series of guides to help businesses prepare for the new regime.