|Is this what bifurcation is all about ...?|
In the piece which the IPKat hosts below, four London-based lawyers James Marshall, Christopher Thornham, David Sant and Paul England of Taylor Wessing LLP -- a law firm which rotates around a decidedly Anglo-German axis since it has six offices in Germany -- explain bifurcation as they see it, placing it within the wider context of patent litigation strategy, and tell us what they consider to be the available options:
Bifurcation in the UPCThe Unified Patent Court (UPC) Agreement was signed on 19 February. After more than 40 years of attempts to bring a single patent system to
Europe, the UPC promises the ability to obtain pan-European enforcement of patent rights in a single set of proceedings for the first time.The time taken to collect 13 ratifications and the seven year opt-out available for new and existing European patents (as distinct from Unitary Patents) means the full impact of the UPC may not be immediate. However, it is now very probably coming and, within a few years, it may have a profound effect on businesses in patent-rich fields.Now is the time for patent-owning businesses to start focusing on whether they wish to be in or out of the UPC and whether they wish to have Unitary Patents. This means considering the implications of litigating Unitary Patents and “opted in” (or, more accurately, non-opted-out) European Patents, in the UPC.What are the major pros and cons? And, is the much maligned possibility of bifurcation really one of them? What effect will this have on strategy decisions for claimants and defendants?The new system has risksThe new system is intended to provide a single patent jurisdiction across Europe. Unitary Patents will protect the whole of the European Union (except Italyand , which do not wish to participate in the Unitary Patent system). A Unitary Patent can, however, be revoked across Europe by one ruling, rather than requiring separate revocations in each European country, as is presently the case. Similarly, rulings of the UPC on European Patents (that are not opted out) will have effect in those territories for which the European Patent is designated. SpainThe possibility of a pan-European injunction is a serious hazard for companies doing business in Europe. The hazard is compounded if there is a risk of stock being seized (at a preliminary injunction stage until trial) and of stock being destroyed (if held to infringe at trial). These matters may lead some businesses to consider whether they can move their manufacturing or distribution centres to countries not covered by the UPC – thus keeping stock out of the reach of patentees.Turning to patentees, the possibility of pan-European revocation is a serious hazard. It is a reason why some companies will avoid Unitary Patents and opt their European Patents out of the UPC system (while the option remains) until they are confident about the quality of the decisions of the UPC and how well the UPC system is working. Some patentees may decide to opt their European Patents out initially, withdrawing that opt out if and when pan-European enforcement via the UPC becomes a necessary strategy.
What do patent litigators from other firms, and other countries, think? The IPKat and his friends would love to know.Others might switch to filing national patents for certain products, which have to be litigated country-by-country in the national courts. Staying outside the UPC in this way avoids the risk of a single invalidity decision revoking patent rights across all of
Europe. Many will keep mixed portfolios of Unitary, European and national patents. Thus, the UPC can be seen as another option for patentees, but not necessarily one that all will want to use all of the time. Over time, the UPC system (and the risk of losing the patent rights for the whole of Europeif they are litigated) may mean patentees who choose to file for a Unitary Patent may invest more time during prosecution than they have done previously to obtain stronger patents: a shift towards quality, not quantity.The new system has benefitsObtaining a single Unitary Patent for the whole of Europeought to be considerably less expensive than the current systems with national rights that have to be maintained in each country. The UPC system will have other obvious advantages for patentees too: not least the fact that a patentee can enforce a Unitary Patent or an ‘opted-in’ European Patent across most of Europein one set of proceedings. There are other advantages of the new system, such as the added choice it offers patentees of where to sue. For example, alleged infringing activity may take place across territories covered by regional divisions and local divisions. In this scenario, the patentee can choose where to sue.This is important because, even though it is a ‘unified’ system, the UPC is presently expected to have a dozen or more local and regional divisions. These will contain panels of judges drawn from different legal traditions. Consequently, there will be some scope, within the framework of the Rules of Procedure, for local variations in approach and application of those rules. It seems inevitable that this will lead to a dynamic situation in which some local or divisional courts become perceived to be more patentee friendly than others. For example, potentially patentee friendly approaches could include:
- Relative ease of obtaining an order to preserve evidence of infringement;
- Relative ease of obtaining a preliminary injunction (and any order to seize stock from the defendant to preserve it until trial);
- Relative procedural speed;
- An inclination for the court to use its discretion to split off invalidity counterclaims from infringement (so-called ‘bifurcation’); this would be favourable to the patentee if there is a likelihood that the validity issue is then determined in the central division of the UPC some time after the infringement hearing.Of all of these possibilities it is probably the last – bifurcation – that has caused most concern. Is that concern justified?The bifurcation optionMany have focused on the potential of bifurcation to put defendants at a disadvantage, and to make courts with a propensity for bifurcation a target of forum-shopping. The concern is that owners of weak patents may have the potential to obtain injunctions well before defendants have an opportunity to revoke the patent in suit. This is the so-called ‘injunction gap’.However, there are at least some reasons to question whether bifurcation will happen as a matter of course in local and regional divisions of the UPC. If an infringement case is filed in a regional or local division of the UPC and the defendant files a counterclaim for revocation of the patent, the Court has a variety of options, as provided for in key passages of Article 33(3) of the UPC Agreement:…The local or regional division concerned shall, after having heard the parties, have the discretion either to:
(a) proceed with both the action for infringement and with the counterclaim for revocation [in the local or regional division]....
(b) Refer the counterclaim for revocation for decision to the central division and suspend or proceed with the action for infringement [in the local or regional division]; or
(c) With the agreement of the parties, refer the case for decision to the central division.Reasons why bifurcation might not happenOnly one option involves bifurcation (see Article 33(3)(b)). Even then, the local or regional division has discretion whether to suspend the infringement action or let it proceed. How long an infringement action might be suspended is not stipulated. However, it is reasonable to assume that it would be at least until the validity case is heard, in which case the risk of an “injunction gap” would be removed.One reason for not bifurcating is that some divisional courts will have judges on their panels who are accustomed to hearing trials of infringement and validity together. The benefit is that it prevents a patentee construing its patent widely for infringement and narrowly for validity.Furthermore, the above reasons should resonate with some principles of case management set out in the current draft Rules of Procedure that include, amongst other things, considering whether the likely benefits of taking a particular step justify the cost of taking it; and giving directions to ensure that the hearing of the case proceeds quickly and efficiently.Dealing with bifurcationNonetheless, let us assume that under the new system local and regional divisions in some territories will bifurcate more often than others. The problem will be that patentees can choose, in many circumstances, to file infringement actions in those divisions where they know bifurcation is more likely. This leaves potential defendants in a difficult position: the risk of a finding of infringement and an injunction before validity has been decided.What are the options?The potential defendant, wishing to market but concerned about a blocking patent, has limited options. If it initiates proceedings by filing a declaration of non-infringement in the central division, the patentee can have this stayed if it files an infringement counterclaim in a local or regional division within three months. If it initiates proceedings by filing a revocation action in the central division, the patentee can keep issues of infringement heard separately if it sues for infringement in a local or regional division where there is bifurcation.One further option for a defendant arises from Article 33(2) of the UPC Agreement:If an [infringement action] is pending before a regional division and the infringement has occurred in the territories of three or more regional divisions, the regional division concerned shall, at the request of the defendant, refer the case to the central division.If the product is marketed in more than three countries with a regional division, the choice of the patentee can be removed and the whole action referred to the central division, at the request of the defendant. It does not appear to be necessary for the patentee to have actually alleged that infringement is occurring in the three regional divisions. Providing the defendant’s commercial objectives are aligned with such a coordinated launch, this provision might be used to steer away from the threat of bifurcation. But even then it is only partly useful: it only applies when an infringement action is already pending before three regional divisions, not local divisions. It also assumes that there will be at least three regional divisions in which to sell its products.A staged approachIn reality, parties who are concerned that their planned product may be blocked by a Unitary Patent, or ‘opted in’ European Patent, may be best to adopt the approach of ‘clearing the way’. If it is considered that the patent is of questionable validity, the preferred strategy may be to file a claim for revocation in the central division to obtain a decision before launch. In cases where a party plans to launch and considers a competitor’s patent may be valid, but is not infringed, the preferred strategy may be to file a declaration of non-infringement in the central division to obtain a decision before launch. If the same issues are in dispute on validity and infringement and there is a “squeeze”, it may be a preferred strategy to file claims in the central division for revocation and for a declaration of non-infringement – again seeking the central court’s decision before launch.In circumstances where pursuing an action to a trial decision before launch is commercially impractical, a staged approach to launch might be an option: launching first only in territories where the local or regional divisions do not bifurcate. In that situation, the patentee may be forced to sue in a court that tries validity and infringement together. Further elaboration of this strategy may involve the party providing an undertaking not to launch initially in territories where the court bifurcates (thus helping avoid the patentee being able to start a claim based on a perceived threat of infringement there).While there are pros to the brand new court system, there will also be some cons. Quite how the cons play out is a matter of speculation at the current time and may only become apparent once the UPC is up and running. However, if decisions on validity in the central divisions take longer than decisions on infringement in the local and regional divisions, patentees will choose to sue for infringement in bifurcating courts and defendants will try to avoid bifurcating courts, so far as they can.