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Challenging the UPC opt-out – how exactly will it work?

Alan Johnson and Luke Maunder
16 June 2017

Patentees all over the world are currently considering whether all, some or none of their existing portfolio of European patents should be opted out of the forthcoming UPC system.  If the conclusion is that some or all should be opted out, they then have a potentially onerous due diligence exercise to undertake to ensure that they will name the correct proprietor or proprietors on the opt-out form to be submitted on-line (preferably during the sunrise period prior to UPC start-up).  This is important because the opt-out is deemed ineffective if the correct proprietor (i.e. the person entitled to be registered as the proprietor) is not named.  A consequence of failing to opt out correctly could be to allow a competitor to apply to revoke the patent centrally in the UPC.  But if there is a mistake with the opt-out, how exactly does anyone challenge it?
 
The obvious answer to this is through the Preliminary Objection procedure set out in Rule 19 of the UPC’s Rules of Procedure (the “Rules”).  This says:
 
“1. Within one month of service of the Statement of claim, the defendant may lodge a Preliminary objection concerning:
  1. the jurisdiction and competence of the Court, including any objection that an opt-out pursuant to Rule 5 applies to the patent that is the subject of the proceedings1 …”
But this answer requires closer examination since the procedure is aimed at situations where proceedings have been started, but the defendant says an opt-out applies.  To give an example, suppose a patentee opts its patent out.  It then withdraws that opt-out.  This would allow the patentee to sue in the UPC.  The defendant might then challenge the withdrawal of the opt-out on the basis that there had been national litigation prior to the withdrawal of the opt-out and hence the provisions of Art 83(4) UPC Agreement (the "UPCA") applied and withdrawal of the opt-out was impermissible.
 
But the more important situation would be when a party wishes to challenge the effectiveness of an opt-out which is on the register, so that it could proactively apply to revoke the patent or seek a declaration of non-infringement.  There is no procedure in the UPC for pre-action challenges to opt-outs.  Hence in this scenario the applicant would have to prepare its case ready to submit it to the UPC, then file its papers electronically together with the requisite fee. Under Rule 16 the Registry has a duty - presumably through formalities officers - not only to check the Statement of claim for various formal requirements, but also to ensure that no opt-out is on the register.  The exact wording of Rule 16.1 is worth considering.  It reads:
 
“1. The Registry shall as soon as practicable check whether the patent concerned is the subject of an opt-out pursuant to Article 83(3) of the Agreement and Rule 5.  In the event of an opt-out the Registry shall as soon as practicable inform the claimant who may withdraw or amend the Statement of Claim as appropriate.”
 
This would prima facie suggest that it is envisaged that the Registry will not allow an action to be commenced if an opt-out is registered.  The claimant is apparently to be given the option of withdrawing the claim or amending it.  The reference to potentially amending the Statement of Claim could be explained as being present so as to cater for cases where more than one patent is put in suit and at least one has been opted out.  Here the opportunity to amend would equate to a withdrawal of the case in respect of the opted out patent.  That makes entire sense, but is a different type of amendment possible?  Can the claimant respond to the Registry by explaining that it wishes to challenge the effectiveness of the opt-out?  Indeed, could the claimant pre-empt such a communication from the Registry by explaining, at the time of filing its claim, that it challenges the opt-out?  If, either pre-emptively or by way of response to the Registry, the claimant asserts that the opt-out has been wrongly registered, should the Registry:
  • always reject claims brought in respect of a patent which has been opted out? 
  • allow the case to proceed as of right?
  • or decide the matter on the merits, either itself or by referring the matter to a Judge of the Court of First Instance?
Let us examine these possibilities in turn.
 
The Registry decides as a matter of policy that it must always reject any claim where an opt-out is on the Register
 
If the Registry’s interpretation of Rule 16 is that it should always reject claims started in respect of opted-out patents, it is difficult to see how the opt-out could be challenged, since the case would not reach the stage of a preliminary objection.  What then?  The possibility of an appeal must obviously be considered.  Hence, could a claimant in this position appeal against this interpretation of the Rules by the Registry?  If so, how might that work?
 
On the question of whether such an appeal is possible at all, one parallel arises from the (at present draft) European Patent Litigation Certificate rules (the “EPLC rules”).  Under the EPLC rules, the Registrar performs a quasi-judicial function in assessing applications for a European Patent Litigation Certificate.  Rule 17 of the EPLC rules specifically states that “Decisions of the Registrar referred to in Rules 15 and 16 may be challenged in accordance with the following provisions.”  Rules 18-20 of the EPLC rules then provide for a specific review procedure to apply under which reviews are directed to the President of the Court of Appeal.
 
The absence of any parallel procedure in relation to opt-outs arguably suggests that there can be no appeal from a decision of the Registrar, even in the case of a decision on the interpretation of the Rules.  On the other hand, the procedure in the EPLC rules is aimed at reviewing the Registry’s quasi-judicial function, rather than a decision in principle.  Further, if the Registry decides that the Rules effectively forbid actions to be commenced where there is an opt-out on the register, there must surely be a route to challenge this as a matter of natural justice.  Hence, this argument should probably be set aside for now, and attention should focus on the possibility of an appeal under Part 4 of the Rules. 
 
The first rule of Part 4, Rule 220, relates to appealable decisions.  There is no obvious reference to decisions of the Registry (under Rule 16 or otherwise) and none of the specific entries in the list of appealable decisions set out in Rule 220.1 seems to apply.  That leaves the catch-all of Rule 220.2 which implies that any decision of the Court may be appealed.  If so, the question then arises as to how such an appeal would be conducted in relation to an ex parte decision, and from a decision of the Registry rather than from the Court of First Instance?  The whole of Part 4 relating to appeals appears to proceed on the basis of appeals being inter partes and arising from decisions of the Court of First Instance.  There appears to be a lacuna in the Rules generally in respect of ex parte decisions, and, in particular, it remains to be seen as to how the Court of Appeal might handle this sort of appeal.
 
The Registry allows all cases to proceed
 
If the Registry takes the view that it must let the case proceed once it has informed the claimant as required by Rule 16.1 that there is an opt-out on the Register, and the claimant has responded effectively saying “Yes, I know”, what then?  Plainly, the defendant can raise a Rule 19 preliminary objection and the challenge will be adjudicated.  Since in practice no patentee is ever going to start an action in the UPC when it has opted out, the situation we are envisaging is where the claimant is an applicant for revocation or a DNI and the patentee is the defendant.  Hence, it would be the patentee who would be raising the preliminary objection by submitting that its opt-out applied.  However, is it really sensible to allow parties to start actions in the UPC when an opt-out is in place, at least without prima facie proof (however obtained – more on that later) of the ineffectiveness of an opt-out?  Probably not, since this could give rise to considerable abuse.  Two instances come to mind.
 
First, parties threatened with national proceedings in respect of an opted out patent could start a UPC action simply to cause delay by having an argument that the UPC had jurisdiction.  Under the provisions of Articles 71c(2) and 29 of the updated re-cast Brussels Regulation 1215/2012, the second seised (national) court would be required to stay its case until the UPC had determined whether it had jurisdiction.  
 
Second, the claim might be aimed at trying to challenge an opt-out without any reasonable basis, in other words entirely speculatively.  The Rule 19 procedure is not set out in much detail, but it is notable that the onus appears to be on the applicant (in this case the patentee) to justify its objection.  Hence it appears that the burden of proof will be on the patentee to justify the effectiveness of its opt-out.  Notable in this context is Rule 6.5(c), which states that:
 
“For the purposes of paragraph 5, there shall be a rebuttable presumption that the person shown in each national patent register and the European Patent Register kept by the European Patent Office is the person entitled to be registered as proprietor or applicant as the case may be.”
 
Perhaps if the patentee has registered the opt-out in the names of those on the relevant registers, it can simply point to the registers and shift the burden of proof to the applicant?  But what if the register is not, according to the patentee, correct? Must it produce evidence to rebut the presumption of Rule 6.5(c) even if the claimant has adduced no evidence itself?  Would a patentee find itself, for example, required to defend its choice of proprietors who had opted out, possibly explaining internal arrangements among groups of companies concerning patent ownership?
 
It is also unclear whether in responding to the patentee’s preliminary objection, if the patentee has not voluntarily produced supporting evidence, the applicant could make an application for the patentee to produce internal documents relating to patent ownership.
 
A more general point is that it should also be noted that Rule 19 objections do not stay other time limits under UPC procedure, and hence unless very confident of it position on the opt-out, the patentee might be well advised to prepare its defence in the interim.
 
Hence it is submitted that this would be an unattractive position to arrive at.  In much the same way as it would be inappropriate to permit a blanket rule against starting actions where an opt-out is registered, it would be equally inappropriate always to permit actions to proceed where a party wishes to bring a UPC action despite an opt-out being in place.  This then leaves the third possibility.
 
The merits of a challenge to an opt-out are decided before the action is permitted to be commenced
 
If we suppose that the Registry receives a Statement of Claim which addresses the opt-out at least to the extent of asserting that it is invalid, and there should be neither an automatic rejection of the case, nor an automatic permission for it to proceed, what would the Registry do?
 
There is no procedure in the Rules for the Court to deal with the dispute.  This is not surprising since Art 6 UPCA defines the Court as comprising a Court of First Instance, a Court of Appeal and a Registry.  Hence the Registry cannot be considered to be a part of the Court of First Instance and should have no function beyond making administrative decisions, at least unless specifically given such a function as in the case of decisions in relation to the European Patent Litigation Certificate as mentioned above.  It is submitted that the Registry really should not be exercising a quasi-judicial function exactly equivalent to the Rule 19 procedure, and that what should really happen is that there should be a referral to a judge of the Court of First Instance.  But on what basis does it have this power and what would the procedure be? 
 
One answer to this may lie in Rule 16.5.  On its face, this allows the Registry to refer decisions to a Judge of the Court of First Instance.  However, the context appears relatively clearly to be to cases where formal deficiencies are identified by the Registry or the requisite fee has not been paid, that is that Rule 16.5 relates only to cases under Rules 16.2-16.4, and not to Rule 16.1.  If so, this procedure is not applicable.  Further, Rule 16.5 refers to the procedure as being one of a decision by default, that is under Rule 355; the procedure of that rule is not at all suited to a decision on the merits of whether an opt-out is effective or not.
 
But if the Rules can be stretched, and the Registry can refer the question to a Judge for decision, the question is then whether the procedure would be ex parte or inter partes also involving the patentee, as would be the case in a Rule 19 objection.  The significance of this is, of course, whether a patentee would find itself required to defend its choice of proprietors who had opted out, and justify these by production of documents. 
 
What one can at least say with some certainty is that, unlike the case of a Rule 19 objection putting the burden of proof on the patentee, it would appear more likely that the claimant as applicant attacking the effectiveness would have the burden of proof.  But would the applicant have to show a prima facie (balance of probabilities) case that the opt-out was ineffective, such as that the persons making the opt-out application were not the registered proprietors?  Or would it suffice to show only some arguable case?  But even this begs the question of how would the applicant know which proprietor(s) had made the opt-out?  At this point in time it is not clear what the register of opt-outs will look like.  What one can see on the currently available beta-system of the CMS is a searchable list of patent numbers for patents that have been opted out.  If this remains the position in the final version, all third parties should be able to see is that a patent has been opted out, with no more information as to who had declared themselves to be proprietor(s).  Hence again ones asks, how does anyone challenge the opt-out? 
 
Indeed, how is a third party not privy to the internal arrangements of a corporation, and of the ways in which it has rearranged its affairs concerning patent ownership over perhaps many years, supposed to know if the patentee has got it right or wrong even if there is a way of determining that the
proprietor(s) opting out are different from those on various registers?  How could it be said they have satisfied any necessary burden of proof where they simply cannot know what the position should be as they would not be privy to that information?  It is, after all, well known that many assignments are not registered unless litigation is necessary.
 
Another question is whether the Court would be able to look at its own Registry records, even if not publicly available, relating to the completion of the online opt-out form?  As to that, note that it appears from the current version of the opt-out system online that all that is required is a declaration that the correct proprietor(s) have been named, unsupported by proof even if they are different from the proprietor(s) named on relevant registers.  Perhaps, in fact, the Court will have no more information than the party challenging the opt-out.
 
If there were some judicial assessment, what would an appeal look like?  Much the same issues arise as discussed above when considering possible appeals if the Registry decided that the opt-out could never be challenged, save that a further issue would arise if merits of a decision were to be considered, that is the further involvement of the patentee in terms of its rights and obligations as a respondent.  In particular, Rule 235 (Statement of Response) states that other parties to the proceedings before the Court of First Instance have the right to lodge a Statement of Response, with the implication that third parties, even if directly affected, have no such right, and certainly no obligation.  Hence, would the patentee be able or, more pertinently, be required to participate?  (Again, would a patentee find itself required to defend its choice of proprietor(s) who had opted out, possibly explaining arrangements concerning patent ownership not recorded on any patent register, and not provided to the Registry when filing the opt-out?)
 
Procedurally, one question is, if the patentee chose not to participate under Rule 235 (even if it were possible for it to do so), whether the Judge Rapporteur of the Court of Appeal could make orders for disclosure of documents and/or evidence against that non-participating patentee?  (The Judge Rapporteur in the Court of Appeal has the case management powers of the Judge Rapporteur of the Court of First Instance at least in the Interim Procedure under Rules 101-110, mutatis mutandis – see Rule 239.)
 
Conclusion
 
Regrettably, there seem no obvious answers to any of these questions.  It would be unfair for third parties to be unable to challenge the effectiveness of opt-outs, but equally unfair if patentees could be dragged into defending speculative actions in the UPC when they had properly opted out.  The “least worst” position would seem to be to allow a challenge to opt-outs when they have some basis.  However, it is not clear how any challenger is going to acquire evidence to support any challenge, nor what the procedure would be, it being especially unclear what role and obligations, if any, patentees would have in the process.  There is, quite simply, a huge gap in the Rules. 
 
Perhaps the answer is that it is not a matter for the UPC to consider at all once it has accepted an opt-out.  If one considers the fundamental question of the UPC’s jurisdiction, it is based upon the UPCA, complete with the transitional provisions of Art 83, which governs the basis on which the UPC has jurisdiction.  Hence, in agreeing to the jurisdiction of the UPC, individual states have given the UPC jurisdiction subject to Art 83.  Your authors have not studied the constitutional basis for all states to cede their patent jurisdictions to the UPC, but, in the case of the UK at least, the relevant Statutory Instrument gives the UPC jurisdiction subject to the transitional arrangements.  It is therefore at least arguable that in the event of any dispute about the applicability of the UPC’s jurisdiction over UK patents, it should be the UK courts which decide whether the UK has given the UPC jurisdiction, and not for the UPC to decide on its behalf.  Such a conclusion would, of course, open up a further swathe of pre-litigation litigation, but that is not to say that it is not the correct analysis.
 
Finally, one point arising from this exercise of considering the procedure is that there is everything to be said for providing only the minimum necessary information when completing the opt-out process online, and for designating any information that has to be provided as confidential so that it is not easily accessible to third parties.  As a practical matter, why give away any information that would help a challenge.


1 The bold words were added in the 18th draft of the Rules.