Licences and Collaborations - Does the UPC have an impact? - 3 September 2014

Licences and Collaborations - Does the UPC have an impact? - 3 September 2014

30 September 2014

The focus on the UPC has predominantly been around the new Unitary patent and litigation, upon both of which we have commented and reported on a regular basis.  Here, we examine the UPC from a slightly different angle and consider whether this new regime could have an impact on licence agreements that include European patents that are subject to the UPC.


Licensing Agreements – Who controls the right to opt out?

In an exclusive licence setting, it is not uncommon for the exclusive licensee to have responsibility and control over the prosecution, defence and/or enforcement of the licensed patents.  In such an arrangement the licensor is usually required to cooperate and/or assist the exclusive licensee.  Occasionally, the licensor may retain control but agree to notify and seek the exclusive licensee’s approval for every action it takes with respect to the licensed patents.

Under the current draft rules (Rule 5), only a proprietor can lodge an application to opt out a European patent from the UPC.  Where a European patent is jointly owned, the draft rules require all joint owners to lodge an application.  This means that in any licence agreement (existing or future), if the exclusive licensee wishes to opt the licensed European patents out of the UPC, it would need to rely on the licensor (and other joint owners if the patent is jointly owned) submitting the requisite notice for opt-out.

It would therefore be prudent for existing licensees to review their existing licensing agreements to ascertain whether these agreements provide the licensee with the flexibility to opt out the licensed European patents from the UPC, if the licensee desires to do so.  A licensee of jointly-owned patents should also ascertain whether it is able to secure the cooperation of all the joint owners either directly (if the joint owners are the licensors) or through the licensor.  

Similarly, parties contemplating licensing agreements in the future may benefit from having an agreed strategy as to the handling of European patents included in the licence agreement.  Given that an opted-out patent can potentially be opted back into the UPC system (by withdrawing the opt-out), the parties may also wish to agree the circumstances under which a withdrawal would take place, and who would be responsible for taking such action.  An exclusive licensee may wish to exercise control over any such decisions and would need to ensure that the licensor is obliged to assist the licensee.  Where the licensed patents are jointly owned, the licensee may also wish to ensure that it is able to directly (if the joint owners are the licensors), or through the licensor, require the co-owners to always consult the licensee before requesting an opt-out or comply with the licensee’s request to opt out or withdraw the opt-out of European patents.

Licensing Agreements – Who controls revocation proceedings?

To avoid losing royalty payments on sales of the licensed product across all designated states in Europe (which would be the case if a Unitary patent were revoked), a licensor may prefer to have a European application grant as a bundle of European patents in the present conventional manner and not elect for unitary effect.  Therefore, to the extent that control of patent prosecution is in the hands of the licensee, existing licensors may wish to review their licence to ascertain whether the licensee is required to consult or seek the licensor’s approval on any aspect of patent prosecution.  Future licensors may wish to have express provisions requiring the licensee to seek the licensor’s approval or input on grant of European applications.

Likewise, a licensee wishing to avoid the risk of losing market exclusivity across all designated states in Europe (which would be the case if a Unitary patent were revoked),   may prefer to have the European application licensed to it grant as a bundle of European patents.  Such licensees would need to ensure that their existing licences provide for such control especially if the licensor is responsible for prosecution of the licensed patents and applications.  Future licensees would wish to ensure that their licences include provisions which would require some level of cooperation between the licensor and licensee on decisions whether to obtain indivisible Unitary patents or a bundle of European patents.  Exclusive licensees in particular may wish to include provisions requiring their preferred approach to be followed, particularly if the licensor is controlling the patent prosecution.

Collaboration Agreements – Does the UPC affect joint ownership?

Parties pooling their research efforts may also face opt-out issues, but will additionally need a policy on applying for a Unitary patent or going down the conventional route (or indeed the national route).  Again parties' views may differ.

In addition, it is possible that the joint research leads to patents that are jointly owned.  Where Unitary patents are applied for jointly, one curiosity of the new regime is that the nationality of the applicants will determine which law will apply to the Unitary patent as an item of property.  Where there are two applicants, it is the nationality of the first-named applicant which takes precedence, such that this usually unimportant matter now has significance, since national law in Europe differs on issues such as the ability of co-owners to assign their rights without the consent of the other.  For example, if German law is the applicable law by reason of the first joint owner being based in Germany, each joint owner can sell its rights to the Unitary patent without the consent of the other joint owner.  Contrast that with English law as the applicable law where joint owners cannot assign their rights in the Unitary patent without the consent of the other.

Therefore a seemingly inconsequential decision as to which party to list first on the patent application for a Unitary patent can potentially have a major impact on the rights and powers of joint owners.

Although applicants cannot decide which law will apply to a Unitary patent as an item of property, joint owners can vary their rights and obligations as joint owners contractually.  For example, parties looking to enter into collaborations could agree upfront which party would be listed first on the application for a jointly-owned patent.  Provisions with respect to assignment could be addressed contractually, such that either joint owner could not assign its rights without the mutual consent of the other joint owner or without offering the other co-owner the first right to purchase.  Similarly, provisions with respect to exploitation rights and revenue share (if any) would ideally also be agreed upfront to vary the applicable national law if inconsistent with the parties’ desirable positions.

Next Steps 

Although a European patent or application may be one of many patents in the bundle of patents that is the subject of a patent licence, the new Unitary patent system can have a potential impact on the value of such licences.  The EU market (even excluding Spain and Poland) is at par with the US market in terms of market size.  Therefore for a party relying on a Unitary or European patent for market exclusivity in Europe, the loss of exclusivity following central revocation of the Unitary patent or the European patent at the UPC means the loss of a significant share of the global market.  Licensees for whom the EU is a significant market are advised to consider carefully the potential impact of this new patent system.

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